Can you afford a little more house
Understanding your Credit Score
Home Buyer's Homework
Closing the Deal
Can you afford a little more house?Some
first-time or young home buyers worry that they can't afford as much house as they want.
But a little cost-cutting can make a big difference in how much house you can afford. With
an eight percent, 30-year mortgage, a $1,000 monthly payment buys a $136,000 home. Just
another $100 each month buys a $150,000 home. Can you come up with another $100? Yes. It's
easy. Here's how:
- Give up two soft drinks a day and drink tap water instead. Two soft drinks at 75 cents
each adds up to $30 per month.
- Take lunch every day. If you eat lunch outside the office just twice a week (at $8 a
day), lunch adds up to a whopping $64 per month.
- Drop the designer coffee. With just $6 more to go, giving up three cups of brew a month
will get you there.
These are just a few ideas on how to save to buy the home of your dreams. Let me help
you find it.
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Credit Crisis
In the wake of the credit crisis, lenders have become
much pickier about whom they lend to. Here are some basic facts that
will help potential borrowers understand what they face.
The measurement that most lenders use to assess applicants’ credit risk
is the FICO score developed by Fair Isaac Corp. The score ranges from
300 to 850.
There’s not one FICO score. Buyers have three: one for each of the three
credit bureaus, Experian, TransUnion and Equifax.
Each credit score is based on information the credit bureau keeps on
file. Since credit bureaus don’t share their data with one another, the
three FICO scores may differ, sometimes by as much as 100 points.
The components of a FICO score are:
• Payment history: 35 percent
• Amounts owed: 30 percent
• Length of credit history: 15 percent
• New credit: 10 percent
• Types of credit used: 10 percent
A consumer with a 580 credit score might qualify under FHA requirements,
but, generally, in order to qualify for a prime loan, a borrower must
have a credit score above 620 for a conventional loan at all, and above
720 for a loan at terms and rates most borrowers would consider
desirable.
Understanding your Credit Score
Perhaps the
most important element of obtaining a good rate on your mortgage is your
credit history. This section is designed to help you assess your
possible credit rating and what type of terms you can expect from a
lender.
Mortgage
When you apply for a mortgage loan from a lender, broker or private
investor the most
important
factor is
your
credit. In some cases it is
only
your credit
that determines your ability to obtain a mortgage loan. There are other
factors but credit is by far the most critical factor that both
determines weather you will get a mortgage loan and at what rate of
interest you will get the mortgage loan at. The better your credit
rating the better you mortgage loan rate will be.
Before You Go Shopping
If you plan
to "shop around" for a mortgage I advise that you take the time to order
your credit report from all three credit reporting agencies, and
distribute them to the lenders you wish to "shop" with. I advise this
because each time a potential lender pulls your credit, your
FICO Score goes down. In some instances this can
mean the difference between qualifying for a conventional mortgage (at
good rates) and a non-conventional at rates less favorable.
The three major credit reporting agencies are:
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Experian -
PO Box
2104 - Allen, TX 75013 1-800-682-7654 |
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TransUnion - PO Box 390 -
Springfield,
PA 1-800-916-8800 |
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Equifax - PO Box 105873 -
Atlanta,
GA 1-800-685-1111 |
General Guide to Credit Ratings
This is a
general guide to what is called "A-B-C-D" credit. These grades are
typical of the requirements used by many lenders, but are not absolute
grades. Individual lenders typically have similar but somewhat different
specifications. Keep in mind that late payments, called "late
pays", are
generally tracked within the previous 12-month period.
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|
A Credit
Considered the best credit rating.
FICO Scores
are generally 620 and up with no late pays on mortgage and no more than
one 30-days-late on revolving or installment credit. No bankruptcy
within past 2-10 years. Maximum debt ratio is 36-40% while maximum
loan-to-value ratio is 95-100%. This type of credit will demand
the best interest rate available!
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B+ to B-
General good credit with
FICO Scores
from 581 - 619. Two or three 30-days-late on mortgage and two to
four 30-days-late on revolving or installment credit. Cannot have
any 60 day late pays. Must be 2-4 years since bankruptcy
discharge. Maximum debt ratio averages 45-50% while maximum
loan-to-value ratio is 90-95%. This type of credit will obtain rates
1-2% higher than current market rate.
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|
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C+ to C-
Fair
credit with
FICO Scores
from 551-580. Three to four 30-days-late on mortgage are allowed.
Installment or revolving credit can have four to six 30-days-late or
two to four 60-days-late. Must have 1-2 years since bankruptcy
discharge. Maximum debt ratio runs around 55% with maximum
loan-to-value ratio averaging 80-90%. This type of credit will
generate rates 3-4% higher than current market.
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|
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D+ to D-
Overall
poor credit history with
FICO Scores
from 550 and lower. Two to six 30-days-late on mortgage or one to
two 60-days-late, with isolated 90 days late. Revolving and
installment late pays show poor payment record with pattern of late
payments. Possible current bankruptcy or foreclosure allowed with
all unpaid judgments to be paid with loan proceeds. Must have
stable employment. Maximum debt ratio averages 60% with max
loan-to-value of 70-80%. This type of credit will result in high
interest rates (12-14%), but borrower can always refinance after one
year of "on-time" mortgage payments to bring rate down. |
Please keep
in mind these are "general" guidelines. Some lenders assign different
grades or use different grade definitions based upon their own method of
evaluation.
Always remember to check your credit report for errors once a year! It
is estimated that 50% of all credit reports contain errors significant
enough for an individual to be denied
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Home Buyer Homework
Buying a home is one of the largest financial
commitments a person can make, so it ’s critical for first-time buyers to make
informed decisions about their investment. Here are some tips to first-time buyers to make
the process easier:
Define your wants versus your needs before beginning your
home search. It will make the process less overwhelming.
Check your credit rating, especially if you will be
applying for a mortgage. Straighten out errors that could hold up loan approval, and
postpone large credit purchases.
Investigate the neighborhood to find schools, places of
worship and other services you may require.
Be an informed buyer and check with your real estate agent
about restrictions specific to your neighborhood; deed restrictions, including exterior
maintenance, lawn care, fencing, pickup trucks or boat storage may be specified.
Insist on a home inspection. Attend property inspections,
be aware of environmental concerns and ask questions. Look for a property with a home
warranty to cover unexpected surprises during the transaction.
Get help with the details.
Choose a REALTOR ®who can coordinate related services and
details for your home transaction. Don ’t rush. You might overlook property
flaws in the excitement of buying a home, or in the rush to lock in a good interest rate.
Think through the process to avoid making choices you will regret in the future.
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CLOSING THE DEAL
Buying or selling a home can be very stressful,
often because the financial decisions you make have an impact on your lifestyle and your
future.
The final step in purchasing a home is the closing. The closing typically is held at a
title and trust company. The buyer and seller meet with brokers and closing agents to sign
documents transferring ownership of the property. The closing process involves reviewing
many details and processing extensive paperwork to ensure that the transaction is complete
and complies with the law. As a REALTOR®, I can be a valuable resource for information
and support during the final preparations. By being well-informed and prepared prior to
the closing appointment, I can help guide you through one of the most exciting events of
your life! Give me a call to set up an appointment!
THE COSTS OF CLOSING THE DEAL
Closing costs are the incurred expenses over and above the price of the property. The
total can be several thousand dollars, not including the down payment. Costs vary
depending on the state and financing terms. I can help you understand what costs to expect
at the closing and in what form they must be paid (certified, cashier’s, or personal
check). Costs you may incur are:
For a Mortgage • Application fees • Appraisal fees • Survey fees •
Loan origination fees • PMI • Points • Title Insurance • Credit report
cost • Future interest payments, depending on the loan terms • Title transfer
fees • Recording fees Additional state or local taxes (could include property taxes)
Insurance • Homeowner’s insurance • Hazard insurance • Escrow company
fees • Closing company fees
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The information in this newsletter is
solely advisory and should not be substituted for legal or financial advice. |
