Tag Archives: credit score

9 Steps to Take Now to Buy a Home Next Year

9 steps to buying a home in 2018You and your family are thinking of buying a new home – or your next one – in 2018. There are things you can do now to prepare yourself. Here are seven steps to get you ready for this exciting move!

  1. Check your credit score. Target a credit score of 740 or higher to get the best mortgage rate. See mistakes on your credit report? Because this process can sometimes take months, you’ll want to start doing that now.
  2. Follow the real estate market and interest rates. What is the market doing in your area? Is inventory low? What about interest rates – are they inching up? You’ll want to lock in the lowest interest rate you can to lower your monthly mortgage payments and long-term financial outlay.
  3. Save, save, save. We can’t stress this enough. Make sure you have enough to cover a down payment, closing costs, moving expenses, etc. Read our article on closing costs to get a better idea of what those might run.
  4. Don’t use your credit cards or rack up more debt. Obviously, you don’t want to open any new credit cards before you apply for a mortgage, but it is just as important not to use the existing credit you already have. Banks will look at your debt to income ratio, so you want that debt figure to be as low as possible.
  5. Don’t overspend during the holidays. It can be tempting to spoil your loved ones during the holidays, but this could make it harder to get a mortgage – particularly if you use your credit cards for holiday shopping. Instead, get creative. Offer services (e.g., dog walking, babysitting, home organizing, handyman skills) or experiences (gourmet meals, outings, etc.)  instead of giving gifts.
  6. Meet with two to three potential Realtors. We say “Realtor” instead of “real estate agent” because “Realtors” have different and a code of ethics to abide by. Real estate agents are held to a lesser standard. Talk to friends, family and co-workers to get recommendations, and do your research before scheduling no obligation appointments to interview. In addition, check their online reviews on Facebook, Zillow, LinkedIn and other sites to see what they’re clients are saying about them.
  7. Shop for a lender. Just like you would shop for a Realtor, explore your mortgage lending options. Check with your bank, local credit unions and mortgage brokers to see where you can find the best deal and the best long-term relationship.
  8. Gather your documents. When you meet with a mortgage lender, you’ll need to provide tax returns and W-2s for the last two years, pay stubs for the last few months, proof of your current living expenses, a list of debts and other expenses, etc.
  9. Get pre-approved for a mortgage. Once you’ve selected a mortgage lender and have pulled together all of your documentation, it’s time to get pre-approved! This will help you determine what your interest rate will be and how much home you can afford. Read more about getting pre-approved here.

Not sure what’s next? Have questions? Call Team Marti  at 253-859-8500. We’d be happy to help you prepare to buy your next home in the New Year!

 

5 Tips for Getting a Mortgage in 2017

Special Home Financing Programs: FHA, VA and USDA LoansUnless you’ve got a trust fund or buckets of cash lying around, if you want to buy a home this year, you’ll need a mortgage. Here are 5 tips to help you find a mortgage that meets your needs:

  1. Find out how much of a down payment you need to save. Down payments vary from 0 percent to 20 percent down, and everywhere in between. Talk to your mortgage lender – or an experienced Realtor – to find out how much you need to save.
  2. Check your credit score. To determine your credit worthiness, you’ll want to review your credit score with a mortgage lender. If you are going for an FHA loan, the average qualifying credit score in 2016 was about 686. The average credit score for a conventional homebuyer was about 753, according to Bankrate.com.
  3. Get pre-approved. While pre-qualification does not guarantee you will get a mortgage, getting pre-approved does. When you get pre-approved by a mortgage lender, it means that lender has checked your credit, verified your income and assets and agreed to lend you money to buy a home, assuming everything else lines up (value of the home, etc.). Learn more about pre-approval here.
  4. The 4 Cs. When seeking pre-approval, a mortgage lender will look at the 4 Cs – Capacity (your current and future ability to make mortgage payments), Capital or Cash Reserves – how much money, savings and investments you have, Collateral – the home you want to purchase, and Credit – your credit history. Learn more about the 4 Cs here.
  5. Decide what type of mortgage is right for you. Before you apply for a mortgage loan, you’ll want to know the different types available to you. For example, if you are a veteran, you might be able to get a VA loan. If you are a first-time homebuyer, an FHA loan might be right for you. Talk to your Realtor and your mortgage lender to see what type of mortgage best fits your situation.

7 Reasons Your Credit Score May Have Dropped

7 Reasons Your Credit Score May Have DroppedA good credit history is needed to buy a home, but what constitutes a “good” credit score varies by lender and loan type. For example, to qualify for an FHA loan with a 3.5% down payment, you need a FICO score of 580 or higher. Conventional loans backed by Freddie Mae or Freddie Mac require a minimum credit score of 620.

With that in mind, it is important to monitor your credit score at least annually. If you have seen your score drop since you last ran your credit report, here are some possible reasons for the change:

  1. Using too much of your available credit. You shouldn’t use more than one-third of your available credit. This can also become a problem if any of your creditors reduce your credit line, throwing the total balance versus total available credit ratio out of balance.
  2. Missing payments
  3. Accounts in collection, tax liens and bankruptcies will all lower your credit score.
  4. Average length of time with open credit lines. The longer, the better.
  5. Limited types of credit – a mix of different credit types is better than just credit card accounts, for example.
  6. Too many credit inquiries for credit cards and loans
  7. Inaccurate information on your credit report

Correcting these problems can take time and a concerted effort on your part to reverse the trend and boost your credit score, but it is possible. Talk to your mortgage lender for advice on what your credit score is, what it needs to be and how to improve it if you are falling short.

 

 

Getting Pre-Approved for a Mortgage: the 4 Cs

Know the 4 Cs of Mortgage Pre-Qualification and Pre-ApprovalRight now we are in a seller’s real estate market, because the number of homebuyers exceeds the number of  homes for sale. This means that, to buy your dream home, you need to stand apart from other home buyers. Not only do you need to have professional representation from an experienced Realtor to make a solid offer, but you also need to get mortgage approval to ensure a smooth home purchase.

We recommend starting with pre-qualification or pre-approval from a qualified mortgage lender or broker. The pre-approval process will tell you how much you can afford to spend on a home. Freddie Mac recommends that you focus on the 4 Cs which determine the amount you will be qualified to borrow:

Capacity: Your current and future ability to make mortgage payments
Capital or Cash Reserves: The money, savings and investments you have that can be liquidated
Collateral: The home that you want to purchase
Credit: Your history of paying bills and other debts on time

Before you start shopping for a new home, get mortgage lender and broker recommendations from your local Realtor. Work with that lender or broker to find out what your credit score is, how much down payment you’ll need and how much you can afford to borrow. Then you can begin your search with the confidence that you’ll qualify to buy the home of your dreams. Happy House Hunting!

[To learn the difference between pre-qualification and pre-approval, see my June 6, 2016 blog post.]

Top 10 Home Buyer FAQs: Part 1

Top 10 Home Buyer FAQs: Part 1 from Kent Realtor Marti Reeder of John L. Scott

 

Prospective home buyers have a lot of questions about buying their first – or next – home. Here are some of the most frequently asked questions I hear from home buyers.

1.  How do I get started? What’s the first step?

Choose a Realtor®, not just a real estate agent, to help you from the very first steps through the closing of your home. An experienced Realtor® can tell you what’s first, next and last, and there will be many steps. Start by asking friends and family for referrals. Then interview a few Realtors to see which best meets your needs and that you feel really understands what you want in a home. Is she easy to talk to, responsive and available? Is she a solo agent or does she have a team? How many homes has she sold in the last year? How long has she been a Realtor? All good questions.

2.  How long does it take to buy a home?

It depends, but usually 30 to 60 days from the time a home buyer signs a contract to purchase a home, according to Homes.com. This does not include time to shop for a home, make an offer, get the offer accepted or to apply for mortgage pre-approval.

3.  What type of credit score do I need to qualify for a home loan?

Again, the answer depends on what type of loan you are applying for. For an FHA mortgage loan, FHA.com says a FICO score of 580 or higher will allow you to make a down payment of 3.5%. A credit score lower than 580 will require a 10% down payment. For a conventional loan, Credit Sesame says home buyers need a minimum score of 620. We recommend you ask your mortgage broker, mortgage lender or your Realtor for the latest requirements, which can change. Bottom line: the higher the score, the better your chances for mortgage approval and the lower your interest rate.

4.  How much of a down payment do I need?

A down payment on a home is a percentage of the home’s purchase price that you pay up front. Ideally, you should plan on a down payment of 20%, but depending on a variety of factors, you may qualify for a loan with as little as 3% down. For a conventional loan, if you are putting less than 20% down, your lender may require private mortgage insurance (PMI) which will increase your mortgage payments. The more you put down, the less your monthly mortgage will be. Also, remember that your down payment is not the only amount of up-front cash you’ll need to buy a home. There will be other expenses including closing costs to budget for.

5.  Are there other mortgage loan programs besides a conventional mortgage?

Yes! There are special home financing programs available including specialty, government-based financing programs like FHA, VA and USDA loans. Learn more about them here.

Next week, we’ll cover the next 5 top frequently asked questions by home buyers. Have your own questions? Type them in the comments below or reach out to an experienced Realtor you know and trust to answer your questions.

Thanks for reading!

 

 

 

Homebuyer FAQs: Mortgage and Closing Costs

What You Need to Know about Mortgage & Closing Costs

Whether you are a first-time homebuyer or a seasoned homeowner ready for your next home, it is important to understand mortgage and closing costs. Here are some frequently asked questions to help you better understand your options.

Buying a Home: Homebuyer FAQs re Mortgage Costs and Closing CostsQ:  What factors impact a mortgage interest rate?

A:  There are many factors involved when determining a homebuyer’s interest rate including credit score, loan type, home price, down payment and mortgage costs (for example, points, mortgage insurance and closing costs).

Q:  What other credit-related factors are important when financing a home?

A:  The better your credit, the lower your interest rate for a home loan is likely to be. Mortgage lenders consider your overall credit score, but they also consider your credit history with them, the amount of debt you already have, how much money you have in savings, your total assets and your current income. Learn more about credit reports and scores here.

Q:  What are points?

A:  Also called discount points, points lower your interest rate in exchange for a fee paid at closing. When you choose to pay points, you pay more at closing, but you lower your interest rate and pay less for the home over time. Points are related to the loan amount, and one point equals 1 percent of the loan amount. For example, on a $200,000 mortgage loan, 1 percent of the loan amount would be $2,000. Points are listed on your loan estimate and on the closing disclosure.

Q:  What is mortgage insurance?

A:  Many lenders require mortgage insurance for borrowers who put less than 20 percent down on the purchase of a home. The mortgage insurance lowers the risk to the lender, making it easier for you to qualify for a home loan. The cost of the mortgage insurance is included in your monthly mortgage payment, increasing your monthly mortgage payment. The cost of private mortgage rates varies depending on the borrower’s down payment and credit score.

Q:  What closing costs will I have to pay?

A:  Closings costs, the amount of money you’ll need to pay when you close on the purchase of your home, vary. Sometimes these costs are paid out of pocket, but some lenders will roll these costs into the total loan amount of your mortgage. Certain closing costs may also be negotiated with the home seller and the home seller’s agent. Common closing costs include appraisal fees, title insurance, government taxes, tax service provider fees, and prepaid expenses (for example, property taxes, homeowner’s insurance and interest between the time of closing and the time your first payment is due).

For more information on interest rates, credit, points, mortgage insurance, closing costs and more, download this free home loan toolkit offered by the Consumer Financial Protection Bureau. It has some great information and checklists to help you through the home buying process. An experienced Realtor® can also answer these questions and guide you as you make decisions about buying a home.

Good luck!

Sources: Consumer Financial Protection Bureau

9 Tips to Keep Your Budget and Credit Score on Track This Holiday Season

9 Tips to Keep Your Budget and Credit Score on Track This Holiday SeasonWith so many people on your gift list, it’s easy to get carried away with holiday shopping. However, overspending can negatively impact your credit score, which can affect your home buying ability, if you’re not careful. Here are some tips to keep your budget and credit score on track this holiday season:

  1. Set a budget. Before you hit the mall – or your favorite online stores – decide what your budget is for each person on your list. Choose gifts within that price limit before you ever go shopping, and commit to staying within that pre-set limit. Being sensible now will give you more financial power later.
  2. Pay with cash instead of credit or debit cards. It is easy to overspend using credit or debit cards because you aren’t seeing the money that goes in and out of your accounts. It is also easy to exceed your budget this way, promising yourself you will pay off the bills after the New Year. You don’t want to use more than 30% of your total credit limit, so maxing out your cards is a bad idea. Paying with cash will help you stay within your budget.
  3. Skip the gift exchange this year. Most of us find our budgets stretched to the limit during the holidays. Talk to friends and family with whom you normally exchange gifts and agree to skip the gifts this year or maybe just buy gifts for the kids. Instead, you can do a white elephant exchange, make homemade treats for each other, or exchange services like babysitting or cooking lessons. You’ll be surprised how many people will be grateful for the suggestion, and it’s fun to see how creative people can be.
  4. Be vigilant about identity theft and credit card fraud. If you’re doing online shopping, make sure you are on a secure site and a secure WiFi network, like your home network. Never make online purchases or access your credit or bank accounts online using public WiFi, and check your bank and credit card statements every few days so you can catch any unauthorized purchases immediately. If you suspect identity theft or credit card fraud, contact your card issuer and bank right away. It is a good idea to let the credit bureaus know too.
  5. Shop online cautiously. If shopping online, pay with PayPal to make sure your information is secure, and not shared with the seller. Does a price seem too good to be true? It just might be. Don’t go just by a site’s product photos. Look at the product details and dimensions, and look at customer reviews. If something seems a bit off, it just might be. Shop elsewhere.
  6. Don’t spend your whole holiday bonus on gifts. If you are lucky enough to get a Christmas or year-end bonus, don’t spend the whole thing on gifts. Buy you or your family a fun treat or reward, and save the rest for a down payment on your next house, the kitchen remodel you’ve always wanted, or to give yourself a financial cushion for emergencies.
  7. Don’t load up a low-limit card. The closer your balance is to the limit, the lower your credit score will be. You’re better off getting a higher limit card and spending less on that to pay it off. Remember, the benchmark is spending no more than 30% of your total credit limit on all cards and credit lines.
  8. Avoid opening a ton of store loyalty credit cards. We’re talking about cards like the Target Red Card or Alaska Airlines’ credit card. Every time you apply for credit, your score will get dinged a little. The more often you apply for these cards, the more your credit score will go down. The savings in store or the cash back rewards may seem worth it, but lowering your credit score isn’t.
  9. Don’t close your credit card accounts. It may be tempting, because you think you’ll save money in the long run, but you won’t. This will take credit away from the calculation used when seeing how much credit you utilize. If you need to limit your spending, put your credit card in a safety deposit box or a safe at home. That way it is available for emergencies, but it isn’t in your wallet for easy spending.

It is easy to get caught up in the spirit of the season and to spoil your loved ones with gifts. You can still spoil them, but do so in a way that fits within your budget. This will allow you to enjoy the holidays while also achieving your long-term financial goals – like buying a house. Happy Holidays!

 

6 Costly Mistakes to Avoid When Buying a Home

house-and-magnifying-glassWhether it is your first home or your third one, you don’t want to make costly mistakes when buying a home. Here are six mistakes that you can avoid with a little time, effort and knowledge:

  1. Not checking your credit score. If you don’t know to expect with your credit history, it’s likely that buyers and lenders may not take you seriously. Looking at listings and pre-planning is fine, but you need your credit score to provide accurate information about your credit history. Review your score a few months before you’re ready to start shopping for a home. This gives you time to ensure everything is accurate and to dispute mistakes. As an added bonus, if you have a high credit score, the pre-approval process will be easier, and you’re likely to get a lower interest rate.
  2. Forgetting about hidden costs. Sure, you’ve budgeted for your mortgage payments and your monthly bills (e.g., utilities, insurance, etc.), but don’t forget about property taxes, homeowner’s association fees, closing and moving costs. These could set you further back if you’re not prepared. You can learn more about closing costs here.
  3. Creating a long-term budget. Budgeting is critical when buying a house. You should think about what you can afford on a monthly basis for the length of the mortgage with a focus on the here and now. No more than a third of your monthly income should go toward housing expenses. If the house you’re considering will cause you to go over that, work with your Realtor to find something that’s closer to your price range. Bottom line: If you can’t afford it now, it won’t matter if you will be able to afford it five to 10 years from now.
  4. Not working with trained professionals. Some people choose their real estate agent blindly, and that works to their disadvantage. Ask for referrals, do some research, and make an appointment to interview a couple of Realtors. Look for someone who has your best interests in mind, and is willing to work with you and your budget to find a home perfect for you. Ideally, choose someone who has been in the real estate business for a while, is familiar with the community where you wish to live, and listens to your wants and needs.
  5. Falling in love with a home before someone inspects it. You may have found your dream home, but sometimes even dream homes have hidden flaws. Before you get your heart set on a home, have someone thoroughly inspect it. This could possibly save you additional time and money, and you’ll know if a house is going to be more work than it’s worth. Find an inspector that is independent from the real estate broker you choose to avoid a conflict of interest.
  6. Failing to research. You may love a home but not the neighborhood. Research the area to make sure it will be a good fit for you. If you want to live in an area with good schools, research before you look at homes. Look into the resale value of your home. If you decide to sell it later on, will you be losing money should you try to sell it?

Talk to all your Realtor about all of these potential pitfalls, and she’ll be able to help you avoid them.

6 Tips for Raising Your Credit Score

Last month we talked about how a low credit score can affect your ability to qualify for a home loan and purchase your next home. Today we’re going to talk about how to improve your credit score with these 6 tips!

  1. creditStay on top of payments. While this seems obvious, it’s critical to raising your credit score. If you don’t pay on time, it can reflect poorly on any future lines of credit, including mortgage or home equity loans.
  2. Erase any dings on your record. Dispute any entries that were a result of identity theft, and correct any errors in your credit history by going directly to the reporting institution.
  3. Pay off outstanding debt. Focus on making minimizing debt to raise your credit score. When you lower your total balance owed, you also lower the amount of interest you pay, and that will in turn, work toward improving your credit score. Stay on top of debt, and you’ll stay on top of your credit score.
  4. Charge less. If you’re charging less, you’ll have lower statement balances. Credit bureaus look at statement balances, instead of carrying a balance when they calculate your credit score.
  5. Don’t become a victim of identity theft. Make sure you carefully check your statements each month to look for errors, and alert your card issuer if you see any problems. Avoid sharing personal details, and use hard-to-guess passwords.
  6. Be patient. If you have big red flags in your credit history (filing for bankruptcy, for example), it will take some time for your score to bounce back. In most cases, it can take from 7 to 10 years to erase the negative effects on your credit score.

Have questions? Need a referral to an experienced mortgage lender? Your local Realtor® can answer questions and provide referrals. Good luck!

How Credit Affects Your Home Buying Ability

How Credit Affects Your Home Buying AbilityCredit is an important factor when buying a home, whether it is your first home or your fifth. Here’s how credit can affect your getting the home of your dreams.

  1. Credit scores affect interest rates. Your credit score will determine the interest rate you receive. The lower your score, the higher your rates will be. High credit scores make lenders see you as a lower risk than someone with a lower score. With the lower risk factor, you’re likely to get a lower interest rate. Even a 1% difference in the interest rate can make a difference in your monthly payments.
  2. Interest rates affect what you can afford. Talk with your lender to see what you’ll spend per month, and see how that will work out for you. It’s dependent on your income, your credit, the price of the home, etc.
  3. Know what credit factors a lender will review. Lenders consider a lot of information when determining your creditworthiness. They like to see borrowers with low balances, a low debt to income ratio, a mix of credit utilization, and a long history of on-time payments. When shopping for pre-approval, ask the lenders you talk to what factors are most important to them.
  4. Most lenders won’t lend at all to those with a credit score of 620 or lower. A score of 740 will qualify you for some of the best rates available. Try your best to pay off any outstanding credit card dues before you apply for a loan.

For tips on how to improve your credit score, see my November 2014 post. Have additional questions? Need more information? Consult with your local lender, or ask an experienced Realtor® for a referral to a mortgage broker or lender who can walk you through your credit questions.

Thanks for reading!

~ The Marti Reeder Real Estate Team