Good discount

Credit Scores Explained

Your credit score has a big impact on your personal finances, with a good score translating into a better rate on everything from home mortgages to auto loans to credit cards. So how do credit scores work?

Your credit score can range from 350 to 850. The higher, the better. The five factors that determine that score, and the percent to which they count towards your score, are as follows.

Payment history: 35%

This is your record of making payments on time and in full. Timely mortgage payments are particularly important. A single late mortgage payment in the last 12 months can downgrade your score. Late payments on other debts such as credit cards and car loans are also bad for your credit score, as are judgments, charge-offs and collections accounts.

A single bankruptcy in the past seven years can damage your ability to get a new credit account or a loan. If you’re looking to get a loan, you’ll have to pay off any judgments or liens first, and possibly get a “satisfaction of judgment” from the court. Your credit score will also reflect the amount of time it takes you to make a late payment. The later the payment, the worse it will be for your score. Being in default of a debt is the worst situation.

To avoid damage to your score, pay bills on time, settle any delinquent accounts and check your credit report regularly to make sure you’re not being held responsible for disputed bills.

The balance you owe compared to your available credit limit: 30%

Ideally, you should keep your balance below 30 percent of your credit limit. At the very least, it should be below 50 percent. While it may seem like a good idea to close credit accounts you don’t use often, you’re actually better off leaving them open. Also, don’t concentrate large balances in a few accounts. It’s better to spread the balance across credit lines than to have one or two accounts with a balance constituting more than 50 percent of the limit. If your credit card company is willing to increase your credit line without pulling a new report, you should take advantage of that.

How long your accounts have been open: 15%

The longer your accounts have been open, the better it is for your credit score. Again, avoid closing credit accounts. But if you have to, close the newer instead of the older ones. And opening new accounts can lower your score initially, so keep that in mind if you’re tempted to open one just to get a 0 percent introductory rate or a discount at the store. That being said, opening a few extra accounts that you don’t intend to use may not be a bad idea if you intend to get a mortgage eventually. If you don’t have much of a credit history, those extra accounts can raise your score eventually if you keep them active and their balances low.

Type of credit: 10%

A mix of credit types is best, including mortgage, auto loan and not more than five credit cards. Having nothing but a lot of credit cards will hurt your score.

Number of recent inquiries by creditors: 10%

Checking your own credit report won’t affect your score. But when a potential creditor — such as a mortgage or auto loan lender, credit card company, or department store   — performs an inquiry on your credit, that can have an impact on your score for up to a year. But you can reduce that impact by taking certain steps. When they’re done within 45 days of each other, multiple inquiries about mortgage or auto loans are treated as only one. However, if you already have a mortgage in the works, you might want to wait until the loan closes before applying for any new credit.

Please keep in mind that this is only for informational purposes, and that you should consult with appropriate professionals for tax, legal and financial planning advice.

FixerUpperHome

Trying to decide whether to buy a fixer-upper house?

How to assess the cost of a fixer upper

Trying to decide whether to buy a fixer-upper house?  When you buy a fixer-upper house, you can save a ton of money, OR get yourself in a financial fix.

Follow these Seven Steps, and you’ll know how much you can afford, how much to offer, and whether a fixer-upper house is right for you.

1.  Decide what you can do yourself.

TV remodeling shows make home improvement work look like a snap. In the real world, attempting a difficult remodeling job that you don’t know how to do will take longer than you think and can lead to less-than-professional results that won’t increase the value of your fixer-upper house.

  • Do you really have the skills to do it? Some tasks, like stripping wallpaper and painting, are relatively easy. Others, like electrical work, can be dangerous when done by amateurs.
  • Do you really have the time and desire to do it? Can you take time off work to renovate your fixer-upper house? If not, will you be stressed out by living in a work zone for months while you complete projects on the weekends?

2.  Price the cost of repairs and remodeling before you make an offer.

  • Get your contractor into the house to do a walk-through, so he can give you a written cost estimate on the tasks he’s going to do.
  • If you’re doing the work yourself, price the supplies.
  • Either way, tack on 10% to 20% to cover unforeseen problems that often arise with a fixer-upper house.

3.  Check permit costs.

  • Ask local officials if the work you’re going to do requires a permit and how much that permit costs. Doing work without a permit may save money, but it’ll cause problems when you resell your home.
  • Decide if you want to get the permits yourself or have the contractor arrange for them. Getting permits can be time-consuming and frustrating. Inspectors may force you to do additional work, or change the way you want to do a project, before they give you the permit.
  • Factor the time and aggravation of permits into your plans.

4.  Double-check pricing on structural work.

If your fixer-upper home needs major structural work, hire a structural engineer for $500 to $700 to inspect the home before you put in an offer so you can be confident you’ve uncovered and conservatively budgeted for the full extent of the problems.

Get written estimates for repairs before you commit to buying a home with structural issues.

Don’t purchase a home that needs major structural work unless:

  • You’re getting it at a steep discount
  • You’re sure you’ve uncovered the extent of the problem
  • You know the problem can be fixed
  • You have a binding written estimate for the repairs

5.  Check the cost of financing.

Be sure you have enough money for a down payment, closing costs, and repairs without draining your savings.

If you’re planning to fund the repairs with a home equity or home improvement loan:

  • Get yourself pre-approved for both loans before you make an offer.
  • Make the deal contingent on getting both the purchase money loan and the renovation money loan, so you’re not forced to close the sale when you have no loan to fix the house.
  • Consider the Federal Housing Administration’s Section 203(k) program, which is designed to help home owners who are purchasing or refinancing a home that needs rehabilitation. The program wraps the purchase/refinance and rehabilitation costs into a single mortgage. To qualify for the loan, the total value of the property must fall within the FHA mortgage limit for your area, as with other FHA loans. A streamlined 203(k) program provides an additional amount for rehabilitation, up to $35,000, on top of an existing mortgage. It’s a simpler process than obtaining the standard 203(k).

6.  Calculate your fair purchase offer.

Take the fair market value of the property (what it would be worth if it were in good condition and remodeled to current tastes) and subtract the upgrade and repair costs.

For example: Your target fixer-upper house has a 1960s kitchen, metallic wallpaper, shag carpet, and high levels of radon in the basement.

Your comparison house, in the same subdivision, sold last month for $200,000. That house had a newer kitchen, no wallpaper, was recently recarpeted, and has a radon mitigation system in its basement.

The cost to remodel the kitchen, remove the wallpaper, carpet the house, and put in a radon mitigation system is $40,000. Your bid for the house should be $160,000.

Ask your real estate agent if it’s a good idea to share your cost estimates with the sellers, to prove your offer is fair.

7.  Include inspection contingencies in your offer.

Don’t rely on your friends or your contractor to eyeball your fixer-upper house. Hire pros to do common inspections like:

  • Home inspection. This is key in a fixer-upper assessment. The home inspector will uncover hidden issues in need of replacement or repair. You may know you want to replace those 1970s kitchen cabinets, but the home inspector has a meter that will detect the water leak behind them.
  • Radon, mold, lead-based paint
  • Septic and well
  • Pest

Most home inspection contingencies let you go back to the sellers and ask them to do the repairs, or give you cash at closing to pay for the repairs. The seller can also opt to simply back out of the deal, as can you, if the inspection turns up something you don’t want to deal with.

If that happens, this isn’t the right fixer-upper house for you. Go back to the top of this list and start again.

TaxPhoto

Should You Use Your Tax Refund Towards a New Home?

During Tax Season, Refunds Help So Many become homeowners!

Down payment is one of the biggest obstacles for prospective first time buyers to purchase a home.  But during tax season, many tax payers have more funds than any other time of year.  So there is no better time to qualify for a new home!  Quite often a tax refund may actually cover the whole down payment on a home purchase.  Additionally there are several programs that do not even require a down payment.  Even though down payment may not be required, assets help the strength of the borrower.  Furthermore, tax refunds may be used as assets or down payment right away.

If I Use a No Money Down Home Loan to Buy, Can I Spend My Tax Refund?

The quick answer is NO!  At least that would be the answer for right now.  Even if a buyer is using a 100% financing mortgage product like USDA or VA.  There are several reasons NOT to spend that tax refund.  Here are several reasons.

  1. Use the tax refund to pay closing costs
  2. Pay off debts to help qualify (talk to us before paying off a debt or collection!)
  3. Keep the refund in the bank as reserves.  More reserves equals better chance of approval
  4. Pay down credit card balances to raise credit scores
  5. Have money for furniture, curtains, or an emergency fund as a homeowner

Can I Apply Now for a Mortgage Even Though I Do Not Have my Refund Yet?

It is perfectly fine to apply for a mortgage loan when you don’t have your refund yet.  At application we can just assume the amount that you will be receiving.  As long as we can prove receipt of the funds in your account prior to the final underwriting approval.

Warning!  Don’t Do This With Your Tax Refund!

Too often we see borrowers receive a tax refund and then just cash the check.  Others will immediately withdraw the funds
from their account. Converting the refund into cash causes problems on a purchase.  Also if the cash is deposited later, proving the source is very difficult.  So it is best to deposit the refund and keep it there.  At least keep the funds in the bank account while waiting for correct advice from a mortgage professional.

Most importantly, talk with one of our professionals before spending or withdrawing the tax refund.  Each borrower’s scenario is different.  Sometimes it is more important to pay off a debt to qualify.  Conversely, others may benefit by having a down payment.

No down payment loans such as USDA or VA are great options.  Believe it or not, these loan payments may even be lower per month than loans which require a down payment.  So we will review these potential options as well for you.

In summary, let’s make sure you know all of your options before spending your tax refund.  You many not even have to spend it at all!

Mortgage Products Available for First Time Buyers Offering Low to No Down Payment

  1. USDA – No down payment required
  2. VA – Usually no down payment required.  Depends on entitlement amount, purchase price, and county limit
  3. FHA – 3.5% down payment
  4. Down Payment Assistance.  Use to offset down payment or closing costs
  5. Conventional – 3% or more down payment
  6. AND first time buyers can even get up to an additional $2000 tax credit each year!

With a tax refund, is there a better time to buy?  This is a great opportunity – low rates, stable job market, and affordable homes.  Why not buy a home now?

6 Signs First time home buyer

7 Steps to Take Before You Buy a Home

6 Signs First time home buyer

By doing your homework before you buy, you’ll feel more content about your new home.

Most potential home buyers are a smidge daunted by the fact that they’re about to agree to a hefty mortgage that they’ll be paying for the next few decades. The best way to relieve that anxiety is to be confident you’re purchasing the best home at a price you can afford with the most favorable financing.

These seven steps will help you make smart decisions about your biggest purchase.

1. Decide How Much Home You Can Afford

Generally, you can afford a home priced two to three times your gross income. Remember to consider costs every homeowner must cover: property taxes, insurance, maintenance, utilities,  and community association fees, if applicable, as well as costs specific to your family, such as day care if you plan to have children.

2. Develop Your Home Wish List

Be honest about which features you must have and which you’d like to have. Handicap accessibility for an aging parent or special needs child is a must. Granite countertops and stainless steel appliances are in the bonus category. Come up with your top five must-haves and top five wants to help you focus your search and make a logical, rather than emotional, choice when home shopping.

3. Select Where You Want to Live

Make a list of your top five community priorities, such as commute time, schools, and recreational facilities. Ask a REALTOR® to help you identify three to four target neighborhoods based on your priorities.

4. Start Saving

Have you saved enough money to qualify for a mortgage and cover your down payment? Ideally, you should have 20% of the purchase price set aside for a down payment, but some lenders allow as little as 5% down. A small down payment preserves your savings for emergencies.

However, the lower your down payment, the higher the loan amount you’ll need to qualify for, and if you still qualify, the higher your monthly payment. Your down payment size can also influence your interest rate and the type of loan you can get.

Finally, if your down payment is less than 20%, you’ll be required to purchase private mortgage insurance. Depending on the size of your loan, PMI can add hundreds to your monthly payment. Check with your state and local government for mortgage and down payment assistance programs for first-time buyers.

5. Ask About All the Costs Before You Sign

A down payment is just one home buying cost. A REALTOR® can tell you what other costs buyers commonly pay in your area — including home inspections, attorneys’ fees, and transfer fees of 2% to 7% of the home price. Tally up the extras you’ll also want to buy after you move-in, such as window coverings and patio furniture for your new yard.

6. Get Your Credit in Order

A credit report details your borrowing history, including any late payments and bad debts, and typically includes a credit score. Lenders lean heavily on your credit report and credit score in determining whether, how much, and at what interest rate to lend for a home. The minimum credit score you can have to qualify for a loan depends on many factors, including the size of your down payment. Talk to a REALTOR® or lender about your particular circumstance.

You’re entitled to free copies of your credit reports annually from the major credit bureaus: Equifax, Experian, and TransUnion. Order and then pore over them to ensure the information is accurate, and try to correct any errors before you buy. If your credit score isn’t up to snuff, the easiest ways to improve it are to pay every bill on time and pay down high credit card debt.

7. Get Pre-Qualified

Meet with a lender to get a prequalification letter that says how much house you’re qualified to buy. Start gathering the paperwork your lender says it needs. Most want to see W-2 forms verifying your employment and income, copies of pay stubs, and two to four months of banking statements.

If you’re self-employed, you’ll need your current profit and loss statement, a current balance sheet, and personal and business income tax returns for the previous two years.

Consider your financing options. The longer the loan, the smaller your monthly payment. Fixed-rate mortgages offer payment certainty; an adjustable-rate mortgage (ARM) offers a lower monthly payment. However, an adjustable-rate mortgage may adjust dramatically. Be sure to calculate your affordability at both the lowest and highest possible ARM rate.