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A FICO score is not a regular credit score. It is the brand of score most widely used. It was developed by Fair Isaac and a company known for developing risk assessment models. It is a complex equation that is not fully disclosed. The information used to calculate your FICO score is found on your credit report and much of it is interdependent in the calculation. This makes it an extremely complex formula. Here is a list of the five main areas of the FICO score calculation:
The first and largest portion is your payment history, and it accounts for 35% of your score. This looks at how well you do at paying you bills on time. It takes into account any late payments you might have and looks at the severity, how recent, and how often it happens. The formula reviews a total of seven years of your payment history.
The next 30% is your utilization. This is calculated by dividing your outstanding balances by your account limits. This is done across all your accounts and on an account by account basis.
15% of your FICO score calculation is your credit history. It is better defined as - how long have you had credit? There are two sub-factors that are considered: The age of your oldest account and the average age of all your accounts.
Inquiries make up the next 15%. These are better defined as how many times your credit report has been reviewed. There are two different types - soft and hard.
Soft is when anyone like yourself, an employer or insurance company, checks your report. Hard is when a creditor checks your report after you have applied for a new account.
The last 10% is your credit mix. This takes into account the credit that you use. There are few rules discussed, but using several different types of credit is in your favor. Many of these factors are interdependent which makes understanding and attempting to estimate your FICO score impossible.
What is really important is that you know what goes into it and how you can impact your FICO score on a day to day basis.
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In today's fluctuating financial climate, there are many areas that one needs to examine before they buy or sell a home.
For instance, if you're thinking of buying a foreclosed house, you must ask not only the price, but about the financing that is offered, and what shape the property is in. Often, but not always, the most recent owner has left the home in disrepair. But it is a reality and you must make an intelligent decision as to whether or not the home is worth fixing up. Foreclosed homes can be a bargain or a burden; look at lots of properties and consider getting your own appraisal before deciding to buy.
Be aware of supply and demand whether buying or selling a home. Right now, the supply is much higher than the demand. Buyers are waiting to see if housing prices and interest rates have bottomed out. If you wish to sell your home, you must make decisions about what you have to offer as compared to other homes in your area. Creativity as well as price is the guiding force here as other sellers may be willing to hold a mortgage, pay closing costs, or include upgrades.
Buying and selling a home in this real estate market is tough, to say the least. Learning as much as you possibly can about the process is imperative. Make sure you know the pros and cons of any decision you make about buying or selling. Talk to us for advice and suggestions on your specific buying or selling needs.
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The economic recession has caused a lot of homeowners to find themselves in danger of losing their homes. There are many situations that have cropped up because of it -- on one side are the homeowners who are doing everything they can to stop foreclosure. On the other side are the companies who are doing all they can to exploit the same homeowners who are needing help. To avoid falling for their scams, it is always good to be informed about these fraudulent schemes that are massively circulating everywhere.
One of the most common scams is the "Mortgage Negotiation Scam."
In this type of scam, companies will tell you they will help you save your home by paying for their services. Usually, they will promise a lot of options that are too hard to resist: credit counseling, emergency lending, debt negotiation, whatever the consumer needs, and other fees they can dream of.
While the borrower is slowly losing cash due to the incessant and ridiculous fees they should pay, the scammers will make it look like they are really negotiating with the lender, when in fact, they are not.
In most cases, consumers say that it becomes extremely difficult to contact these scammers, and after a while they get the shock of their lives when they are finally told to file for bankruptcy or grant a deed in lieu of foreclosure to the lender. This is usually shocking to the homeowners, because they were, in some cases, even promised "money back guarantees" by these fraudulent companies.
You can't be too careful with these scams. Talk to a lender you trust, or better yet, directly to your mortgage company. Don't be taken by these hideous scammers.
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The Wall Street Journal
With traditional investments delivering low returns, some are considering buying rental housing. However, potential investors should do their homework and avoid the following common mistakes.
Making sense of the story
- Investing in real estate right now can be profitable, if everything goes as planned. Rents are increasing in many areas, and more properties may be coming on the market.
- Last month, the Obama administration asked for proposals on how to convert at least some of Fannie Mae’s and Freddie Mac’s inventories of foreclosed homes into affordable rentals.
- Traditionally, investors rented out properties for 1 percent of the purchase price per month. However, according to one property management firm, today, some investors are receiving as much as 2 percent of the purchase price.
- While it may be true that in some areas home prices are relatively low, that doesn’t mean the property can be rented out. Homes in deserted subdivisions aren’t any more appealing to renters than they are to buyers. The same is true for less-attractive properties or those in less-desirable school districts.
- Prior to purchasing a property, investors should also factor in closing costs of 3 percent to 6 percent, the costs to fix up the place and maintain it, and the holding costs.
- Investors become landlords, and as such, need to keep in mind that, just like homeowners, tenants may not always be able to pay rent. Evicting tenants can take several weeks.
- It’s also important to remember that owning a rental is not the same as owning a home. An owner may put up with flaws in a home that a renter wouldn’t tolerate. Additionally, many states and communities have strict laws for landlords, even for those who own only one property.
Reprinted from the Wall Street Journal
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4 Insider Secrets for Avoiding Surprises at the Closing Table
By: Tara-Nicholle Nelson | www.trulia.com
I used to pass a mortgage company billboard on the freeway every day that read: “Surprises are for birthday parties.” (Implied: surprises are usually unpleasant when they arise in the context of real estate transactions.) The worst case scenario that looms large in the minds of buyers, refinancers and sellers alike is that they’ll get to the close of escrow and some big glitch will arise, coming between you and your home – or your cash.
Here are 4 key need-to-knows to help you avoid getting a nasty surprise at the closing table.
Read my lips: no new bills (or other financial blips). Most savvy buyers know better than to run out and buy a car while they’re trying to buy a home. But you’d be surprised at how many don’t think twice before opening new credit accounts to buy appliances or finance the kitchen remodeling work they plan to have done as soon as they get the keys to the place. Many a lender will run a quick credit check right before closing, mostly so they can detect whether your bills – your monthly obligations – have increased to a point that pushes your debt-to-income ratio too high to qualify for the home, or would make it tough for you to pay your new mortgage.
If your escrow runs 45, 60 or 90 days (or longer) as they commonly do in short sales and sales of bank owned homes, new accounts can certainly show up on your credit report in that time frame, endangering the deal and generating a surprise “no deal” from your lender just when you thought you’d be getting a set of closing docs to sign.
Also, some lenders conduct a last-minute check of borrower’s bank account statements. Of course they want to make sure that you have the cash you need to seal the deal. But you might be surprised to learn that lenders also want to be sure that there are no unexplained, major deposits to your account, as well. They know some borrowers are inclined to borrow fistfuls of dollars from family and friends just before closing in an effort to scrape together the cash they need to close their home purchase by any means necessary.
And, unless the money is a lender-approved gift, that’s not allowed! (Why? The mortgage lender wants to avoid the friend or relative later saying they “own” part of the house, and also doesn’t want your obligation to repay a “friend-and-family” loan to interfere with your ability to repay your new home loan!)
If you have any large deposits (other than your normal income) come in just before or during escrow, be prepared to both explain them and document their source.
Make full disclosure when you first apply for your mortgage or short sale. Today’s loan underwriters are notorious for being sticklers about verifying and re-verifying the facts on your loan application. And as mortgage guidelines have tightened, lenders have also tightened up the underwriting process, creating a virtual gauntlet of review after review, underwriter after underwriter that you have to get past in order to close your deal. The most critical one? The funder – it is this underwriter’s job to give the thumbs up (or down) on wiring your mortgage money into escrow.
Funders are the toughest to get past, understandably, because the buck stops with them when it comes to their employer’s issuance of tens, even hundreds of millions of dollars of mortgage money every year. So, they want to be sure every last one of your loan qualifying i’s are dotted and t’s crossed – up to the very last possible moment before they green-light the disbursement. They have the right – scratch that – the responsibility to re-check your credit, assets, even your employment at the last minute, and they take this responsibility very seriously.
And on a short sale, the pre-closing title check can reveal legal judgments and liens against the seller that have been placed on the property up to the day of closing.
I’ve seen deals fall apart or come to the brink of failure the day or so before they were supposed to close because a buyer had lost a job, turned out to actually be legally married (the divorce they’d put on the application was not yet final), or a new collection account had surfaced. I recently saw a short sale nearly cancelled when a new collection account of the seller’s was filed as a lien on the house. Once, I even saw a deal killed beyond salvation when a last minute credit re-check surfaced a social security number flag that revealed one buyer was not in the country legally!
To avoid these sorts of last minute surprises, be 100 percent honest with your real estate and mortgage agents at the beginning of your homebuying (or selling) process about any and every area of your life that corresponds to a mortgage or short sale application question, even before you complete the application – there’s almost no such thing as an overshare at that stage. That puts them in a position to help you avoid closing table drama from the jump, even if it means they advise you to stay in your job, settle some bills or buy the home on your own, rather than with your spouse.
Watch the calendar closely. Buyers who originally were pre-approved for their mortgage many moons before they find the right property should obtain updated estimates of their mortgage payments and the cash they will need to close their purchase as their house hunting period goes on, and especially once they have a firm closing date estimate. Mortgage interest rates can change dramatically over a period of a few months, and closing costs vary widely based on things as seemingly minor as whether your transaction closes at the beginning or the end of the month.
To avoid getting to closing and realizing that you have to come up with an extra few weeks’ worth of prepaid mortgage interest because your closing date changed, make sure your real estate and mortgage brokers are in close communication, and ask them to keep you apprised of how any closing date changes will impact the size of the check you’ll have to write to close the deal. And if you’re buying a property that is a short sale or foreclosure, ask them to give you this briefing as soon as possible (and as frequently as possible!) in the transaction so that you can prepare a little cushion of extra cash in case closing is delayed for reasons beyond your control (which happens very frequently in these sorts of sales).
Obtain and review your closing documents in advance. I used to give this advice mostly to buyers, urging them to ask their agent and mortgage broker to provide them with their loan and title documents at least a day or so in advance – earlier, if possible. If you have to sign 300 pages at the closing table and you know your keys and moving plans hang in the balance, the chances you’ll be scrutinizing every line are pretty slim – and if you do happen to catch an error, the time it will take the lender to revise and reissue a set of papers can throw your moving calendar entirely out of whack.
The best practice is to get these documents in advance, so you can check on line items like the interest rate and monthly payment in the comfort of your own home or office, ask questions of your representatives and initiate any corrections that need to be made without disrupting the plans for signing and closing.
And this applies to sellers, too – even though buyers have a much higher volume of paperwork to get through at closing (and errors can be costly), closing doc errors occasionally arise that have a serious impact on sellers, as well. I was once asked for advice in a situation where the seller owned two neighboring parcels of land, and the title paperwork for the sale of one erroneously included the other one, too! It took a boatload of high-drama legal wrangling to get the mistake corrected, and get the sellers’ other lot back.
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If you're putting your home up for sale, you may be wondering which improvements will maximize the value of your property. Here are some of the most cost-effective improvements you can make - giving you the most bang for your home-improvement buck!
1 - Refinishing your hard wood floor or replacing worn tile can add thousands to your home's bottom line. These improvements are especially cost effective if you rent the necessary equipment and do the labor yourself.
2 - Storage upgrades If you have a roomier bedroom, consider dedicating some of that extra space to a walk-in closet. Or take that unused area in your garage and create some sturdy shelving for stowing away sports equipment and tools. Roomier pantries for your kitchen can also add extra utility.
3 - Stage your entrance Adding a fresh coat of paint to your front door can elevate the impact of your homeís debut to visitors. Also consider upgrading any accessories near your home's entryway, such as lighting fixtures and even door mats.
4 - Replace your mailbox The mailbox may not seem like a focal point for your home, but a simple replacement of this necessity can do wonders for your curb appeal.
5 - Handles and Knobs An entire kitchen or bath renovation is a costly endeavor, but replacing your kitchen and bath hardware is an inexpensive way to update the feel of these often scrutinized rooms.
6 - Adding a patio or deck to your home can add extra living space, and can even tip the scale for some prospective buyers.
7 - Planting new flowers, uprooting suffering plants, pruning trees, and adding some color with flowering bushes and perennials can create a great return for your investment. Once again, the first impression made by your landscaping can make all the difference for those considering your house for their next home.
When marketing your home, the goal is to make smart, inexpensive improvements. Keep in mind that enhancing your home's existing features is one of best ways to boost its appeal to prospective buyers.
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One of the best ways to keep costs down on real estate repairs is to do the work and maintenance yourself. That works ... unless you don't have the time or necessary skills. In those cases, you'll have to hire someone to do the work.
Here's how to do it - and avoid ugly surprises:
1. Get at least three quotes.
Sometimes it takes a lot of effort to get in touch with people to ask for a quote. So it's tempting to get just one and quit. Don't do it! You might be amazed at how much difference there will be in 3 different vendors.
2. Keep in mind that the lowest quote is not always the best one.
Ask for references and find out exactly what's included in the quote. Many times a higher price actually turns out to be the best option because it comes from someone with a better reputation, includes everything, and has a good warranty.
3. Overestimate the cost and time it will take.
Most people will agree, the final cost is often times more than you expect. When doing repairs that involve tearing out walls or plaster or sheetrock, surprises can always be lurking behind the walls, and most estimates will not include hidden damage or repairs that are not visible upon the original estimate.
The savviest real estate investors agree that you should get multiple quotes and add at least 50 percent to each estimate.
Do your due diligence on the contractor and the work process involved, and you'll end up with a lot more money in your pocket.
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Before making any big changes to your home you should ask yourself these big questions:
1. How long do I plan to stay in my house after the renovations? The longer you plan to live there, the more creative you can be. But if you're planning on selling the house in the next five years, keep potential buyers in mind with your choices. In the latter case, for instance, go with neutral colors in the kitchen and bathroom, and consider maple cabinets. Some people hate oak, others hate cherry, but the majority can live with maple. 2. Am I doing just cosmetic fixes or am I ready for an all-out overhaul? It's OK to make small changes one at a time, but think long-term about the next step. For example, if you're buying a new sink, buy one with enough holes on the deck for the faucet, sprayer and soap dispenser you might want to add on later. (Cutting more holes into stainless steel or porcelain after the sink is installed is an onerous job you don't want to get stuck with.) And if you know you're going to buy new cabinets later, don't replace the countertop with expensive granite now. The chances of reusing it are very slim -- either it breaks when you try to remove it, or it doesn't match the footprint of the new cabinets. 3. Am I prepared for the home upheaval? Be realistic about how long these changes might take. Renovations can go on for months, so you need to be prepared to make do without that bathroom, kitchen or bedroom. When checking references before you hire your contractor, be sure to ask if the company finished the work on time. You'd be surprised how quickly a week can turn into a month. And if you're bunking up with your in-laws during renovation, that month can seem like a year. 4. Are the renovations keeping with the style of my home? Any big changes you make to a home inside should reflect what future buyers will expect from the outside. If you live in a Victorian house, don't make it too contemporary. People who see a historical exterior will expect a historical interior, so stay true to the details. The same goes for a contemporary or modern home, where future buyers may not expect old-fashioned details like antique crown molding. 5. Are my DIY choices reasonable? You may consider yourself handy, but many do-it-yourself jobs demand your time more than anything else. If you have a full-time job, are you capable of taking on a second one? Some makeovers that are not technically difficult can take longer than you think. For that reason, if you start any job yourself, try to sample it before committing to the whole thing. For example, while refinishing cabinets with a new stain isn't rocket science, sanding down each one can take forever.
A final tip: if you do plan to follow through with a large-scale renovation, do the smallest room in the house from start to finish -- the insulating, rewiring, painting, refinishing, tiling -- so you gain a sense of accomplishment.
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There used to be a policy stating that anyone aged 55 and over could exclude up to $125,000 of his/her gains from the sale of a house. This was availed of under the premise that this is done only once.
The newer rules now are actually more specific. In one amendment, the age requirement was no longer in effect and the amount for exclusion was increased to $250,000 per person. Thus, a couple may claim tax deductions up to $500,000 from gains made on the sale of a house.
Later, the policy was revisited making the benefit available to anyone every two years. This means that every two years, anyone can sell a house and exclude up to $250,000 in gains from taxes.
Keep this in mind if you've sold a home this year, or planning to sell a home, but always check with your tax advisor to make sure the capital gains rules haven't changed again in a way that may negatively affect your situation if selling a home.
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Real estate prices cycle through different highs and lows. Keeping track of the following market indicators will help you decide if now is a good time to invest in real estate or not.
Job Growth
People go where the jobs are, and home prices follow jobs. A strong local job market is a sure sign of a healthy real estate market. While the Wall Street Journal gives you insight into the nation's overall economy, check the local newspapers in the area you're considering for statistics on the job market in your chosen area.
Housing Inventory
The housing inventory is the number of houses for sale at any given time in the area. If there are more houses than buyers, prices tend to fall and if there are more buyers than houses, the opposite occurs. Also look at the number of months or days it is taking for homes to sell. If it's less than 60 days the market is considered hot.
Number of Foreclosures on the Market
A foreclosure (or repo as some call them) is a house that has been taken over by the bank because the owner failed to meet the loan payments. The more foreclosures in the area, the weaker the real estate market.
Number of Multiple Offers on Homes
Multiple offers are when two or more buyers ''bid'' at the same time for the same house. It's a sure sign of a hot market, usually resulting from a limited inventory creating the need for buyers to compete on price for the same property.
If you have questions about our local market, contact us. We'll be happy to get you the information you need to make an intelligent buying decision.
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Faced with plunging property values and rising defaults, lenders are charging borrowers higher mortgage rates and adding fees. Not all of these added costs are set in stone, however. If you're looking for a loan, vigilant shopping and a little haggling can go a long way toward landing a better deal.
Here are some fees you need to watch out for:
Application Fees
Just because an ad says "no application fee" doesn't really mean there's no fee to get the loan. Fees paid outside of closing typically include an application fee, an upfront property appraisal fee, and a credit check. They might be disguised as something like a "document processing fee" or "doc fee."
Risk Adjust Rates
Getting deemed a risky borrower is no longer just a matter of a low credit score. Lenders now consider other risk factors. Buy in an area that has seen values drop precipitously and you can expect a higher interest rate.
Down Payment Penalties
The days of zero down on a mortgage are over. Without a down payment of at least 20%, prospective homebuyers will undoubtedly get hit with a higher interest rate and need to pay for more points. (Each point usually amounts to a fee of about 1% of a mortgage.)
Also, if buyers can't put 20% down, they'll need to get private mortgage insurance, which typically costs 0.5% of the loan. Shopping around for lenders with more-favorable points and insurance charges can help lessen the blow.
Closing Costs
Closing fees amount to 2% to 5% of a home's price. Location plays a big role, as taxes and other requirements vary by state. Some states require expensive attorneys to oversee the closing process, while others allow a title agent or escrow officer.
Ask potential lenders for a good-faith estimate of closing costs. Then check in weekly with whoever is handling the closing to see whether there are any changes in either lender or third-party fees.
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For the most part, you can obtain a home loan with fair credit. In some cases, you may even be able to get a low rate. Unfortunately, if your credit score falls below 500, homeownership may be impossible. Even with a credit score below 600, your loan options are limited. It's important for anyone contemplating buying a home to improve their credit rating.
Lenders will carefully review your credit report and score before approving your mortgage. Late payments, collection accounts, excessive debts, and inquiries contribute to having a high or low credit score. Mortgage rates are based on credit rating. Therefore, if you're hoping to get a great mortgage rate, which equals lower monthly payments, now ís the time to improve credit.
Save Enough Money for a Down Payment
Because it's difficult for hard-working people to save money for a down payment and closing costs, various loan programs will incorporate fees into the total loan amount. However, if you have bad credit, a down payment can improve your chances of getting approved for a home loan.
The ideal down payment is 20% of the home price. However, lenders are willing to accept smaller amounts. If possible, attempt to have a down payment of at least 3% to 5%. Aside from boosting approval chances, a down payment may help you secure a lower rate.
Use the Right Lender for a Bad Credit Loan
To obtain the best mortgage loan with a low credit score, you need to use a sub prime or high risk lender. Some traditional lenders offer sub prime loans. However, choose a lender that specializes in bad credit loans. You may obtain better rates with a bad credit mortgage lender.
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Not long ago, no-down-payment loans were big for homebuyers. But now that lenders have tightened their standards, borrowers once again are expected to pony up some cash of their own for a down payment.
Many homebuyers have difficulty coming up with a down payment. Here are some ways to do it:
* Set up an automatic saving plan. * Get a gift from your parents, grandparents, other relatives or friends. * Sell a car, boat, motorcycle, collectibles or other assets. * Liquidate stocks, mutual funds, savings bonds or other investments. * Allocate your income tax refund. * Take a loan from your 401(k) retirement plan and repay yourself with interest. * Withdraw funds from your 401(k) plan, subject to taxes and penalties. * Collect on a loan that you made to someone else. * Get a bonus from your employer. * Explore homebuyer programs for public servants if you qualify. * Apply for a state or local government down-payment program. * Use a private down-payment assistance program.
Lenders need to know how you obtained the funds and that you've had control of those funds for at least several months.
Gifts and seller's concessions are acceptable, up to the percentage allowed by the loan program, but borrowed money can't be used as a down payment, as it is debt that has to be repaid.
Two government-run programs are designed to aid homebuyers who haven't saved much for a down payment. The Federal Housing Administration offers mortgage insurance that allows qualified buyers to purchase a home with a 3% down payment, all of which may be a gift. The U.S. Department of Veterans Affairs offers a home-loan guarantee program that helps military veterans buy homes with no down payments.
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Before you dive into a major renovation project to give a house your special signature, consider how long you're likely to stay in the house.
A lot of people get into trouble by going into a home they're only going to be in for a relatively short period of time, and they start doing renovations and additions that are sort of on their fantasy list, but they're not going to be there long enough to really enjoy.
Here are four reasons to proceed with caution, particularly if you want to maximize your chances of a profitable resale later on.
1. High maintenance - If your upgrade requires too much upkeep, buyers may view it as more of a nuisance than an asset. A prime example is an in-ground swimming pool, which can cost a small fortune to install, secure, heat and clean.
2. Overdressed - Luxurious amenities can be a good selling point, but only if they blend in with rather than outshine what the neighbors have. Having the nicest home in the neighborhood can be a bad thing when it's time to sell. A prime example would be upgrading the kitchen in an entry level home to reflect remodeling from high-end home magazines.
3. Too Personal - Making a "Cookie-Cutter House" in the image of your own exquisite taste. Any time you deviate, no matter what the improvement is, from what is a fairly traditional, single-family house, you run the risk of improving in a fashion that will not lend itself to additional dollars at re-sale time.
4. Unpopular - If no one else on the block has a room like the one you're adding, or all the other houses boast the very feature you're getting rid of, watch out. For example, although converting your garage into an office, bedroom or playroom can be a less expensive way to add square footage and create more living space, it can have drawbacks. Potential homebuyers might miss the sheltered parking more than they welcome the additional room, especially if other homes in the neighborhood have garages.
This final tip for whatever type of home renovation you may be considering: Before you do anything in a house, live in it for a while. Prioritize what needs to be done, then go back a year later and see how much your list has changed.
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The current downturn in the real estate industry (that makes news headlines almost daily) is not all bad news. The historic fall in home prices, coupled with rock-bottom interest rates on mortgages, could mean the deal of a lifetime for home buyers.
With home prices falling as much as 30% (or more) in some parts of the country the past year, many home buyers are learning that they can afford homes in areas that they once believed were out of reach.
ATTENTION HOME BUYERS!
With inventory levels at an all-time high, and sellers willing to make concessions to move their homes in a slow market, buyers have the upper hand. So if you've been considering buying a home, the time is now! Mortgage rates are the lowest they have been in decades, and home prices have fallen dramatically, creating the perfect conditions to shop for your dream home. Seize the moment!
If you have any questions about our current market, or if you've been considering a home and thought you couldn't afford it or wouldn't qualify, THINK AGAIN. We have never seen a better time for home buyers than we're seeing right now, and may never see it again.
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