Tag: Establishing Credit

The 7 Worst Financing Mistakes First Time Home Buyers Make…And How to Avoid Them, A Free EBook

I am excited to release my new EBook for first time home buyers: The 7 Worst Financing Mistakes First Time Home Buyers Make… and How to Avoid Them.

Click here or on the picture on the right to download your free copy.

Having originated mortgages for close to three decades, I have found the topics covered in this EBook are the ones first time home buyers want to know about most. Hopefully, this EBook will help you avoid the mistakes others have made that have cost potential home owners thousands of dollars, and blown up many deals.

Here are some of the mistakes I cover in this easy read, that will help you avoid a similar fate:

  • Overextending yourself
  • Not counting the cost of bad credit
  • Not knowing your down payment options
  • Not budgeting for closing costs
  • Not getting pre-approved
  • Not choosing the right mortgage product
  • Not getting multiple lenders to compete for your business
  • and so much more…

The download is absolutely free as my gift to you for reading my blog; there is nothing to buy and no commitments to make. Enjoy it, and feel free to pass it on.

I wish you much success on your purchase.

3 Hot Tips To Boost Your Fico Score

Building a good credit score is a long term process. As they say, a journey of a thousand miles starts with the first step. Beware of quick fixes. There are none except for the quick fix of getting into your wallet by way of a scam, and there are some out there. Here are three hot tips to boost your credit score.

Today, one of the biggest components of your FICO score is the percentage of available credit you are using. This is also known as your Utilization Ratio. The traditional way of course is to pay down your accounts to improve the percentage. The higher the percentage the lower the score. There is another way.

1. ASK FOR CREDIT INCREASES:

This achieves the same result-decreasing the percentage of credit used. Just be careful not to use the new found “wealth”. That is like shooting yourself in the foot. Be careful not to ask for too much of an increase.

2. PAY OFF YOUR BILLS:

Pay them off not when they are due but before they are due. Find the statement date (usually 20 or so days before the due date) and pay it off a day or so early. That brings your account balance to zero dollars, thus increasing the percentage of available credit. If you pay the bill on the due date it will not have the same effect.

3. DON’T TOSS THOSE OLD CARDS:

Many have found out about this one the hard way. If you are not using an old card for any reason do not throw it away. Take advantage of it and charge small amounts occasionally. This results in an active vs. an inactive status for that account. Active accounts are factored into the FICO scoring system-inactive accounts are not.

Using these three hot tips will boost your FICO score almost overnight. Take the knowledge and run with it, and improve your score today.

What Size Mortgage Can I Afford?

When shopping for a house, it can be easy to fall in love with the home of your dreams. Be careful, however, that you are aware of how much house you can afford so your dream home isn’t crushed at the lender’s office.

Lenders often talk about qualifying ratios or debt ratios. These numbers can seem a bit mysterious, but a few simple formulas will give you an idea of what size mortgage loan you may be able to afford. Although this is helpful to determine a house budget, never rely on these numbers alone when planning a purchase. Consider obtaining a pre-approval for a loan from your broker or lender, so you know the exact amount you have to work with.

What size mortgage can I afford?

Grab a piece of paper and follow these steps to determine how much you can afford for a conventional mortgage. (Formulas for governmental or FHA mortgages will differ.)

1) Determine your monthly gross monthly income (before taxes).

2) Multiply this amount by 0.28. This is your maximum monthly housing expense. (Lenders allow 28% of monthly gross income for housing expenses. This is also known as the front end ratio.)

3) Now multiply your monthly gross income by 0.36. This is the allowance for your long-term monthly expenses. (Our company is a bit more flexible with that number, and may stretch it to 40 or 45% depending on the strength of the application). Many lenders allow that percentage of monthly income to go toward long term debt that can’t be paid off in 10 months.

4) Add up your monthly long-term obligations including child support, auto loans, credit cards minimum payments, and other payments that can’t be paid off in 10 months.

5) Subtract the total of those obligations from your long-term monthly expenses in step 3. This is your monthly housing expense. (This number is used for the back end ratio, or debt to income ratio, to make sure your total debt does not exceed 36% of your monthly income.)

6) Compare the maximum monthly housing expense from step 2 and your monthly housing expense from step 5 and take the smaller of the two. This is the amount you can afford each month for payment of principal, interest, taxes, and insurance – also called PITI.

The length of the mortgage and interest rates will affect the total dollar amount of the loan, so talking with a lender will give a big picture view of what you can afford. Getting pre-approved for a mortgage will take the guesswork out of deciding a price range for a potential house and reduce stress in the home-buying process.

Give me a call about any possible mortgage scenario or if you need a pre-approval, I will be happy to help.

Beg, Borrow or Steal, But Make That Mortgage Payment

One of the most common things I hear when a prospective client contacts me for a mortgage refinance is “I just missed a mortgage payment and I want to refinance before it’s too late”. When I ask them about their credit, most of them reply “Oh I pay everything on time, I just got behind this one month on the mortgage”.

It breaks my heart to tell them that in many cases, it already is too late. The reason is simple if you really think about it: If your home is your biggest investment, your greatest potential asset and your largest current liability, there is nothing more important than showing that you are able to make the payment on it every month. If you are in a cash crunch, you’re better off missing or underpaying almost any other payment, such as a credit card bill, even your utility bill, instead of missing or even delaying your mortgage payment, because missing one mortgage payment can cost you tens of thousands of dollars over the years.

When you miss a mortgage payment, your credit score may not go down dramatically. But your mortgage credit quality will take a serious beating, and you’ll carry it around for years. When you start out with a mortgage, regardless of what your FICO credit score is, you are rated an “A”, meaning you make your mortgage payments on time. If you miss a payment, and even if you’re just late enough to qualify as 30 days late, the lateness is recorded and you will become an “A-” or a “B”. Just one mortgage lateness can keep you out of the refinance market for up to two years by automatically locking you out of the lowest payment programs. If it sounds a bit like high school, it is, but this time it’s for keeps. Keep missing or delaying payments, and you’ll quickly see your mortgage quality decline to a “C” or “D”, which could prevent you from refinancing entirely, by eliminating your eligibility from even standard rate programs.

This hurts the most when you refinance or are ready to buy a new house, because you are usually borrowing more money than you were previously, either to pay off bills or make home improvements, or because you’re buying a bigger house. So not only are you moving to a higher balance, but your now derogatory mortgage credit will force you into a high rate. If you need the cash to pay off bills and improve your credit urgently, or to purchase a home in a new area because you are relocating for work, you can wind up in a horrible Catch 22, very often disqualified for financing entirely, or with financing so unaffordable that you would rather not.

So what can you do about this? If you do better with automatic payments, sign up for direct debit payment with your lender, or arrange for your bank to automatically pay your mortgage every month on a specific date far enough ahead of the due dates for your other bills, so you won’t be tempted to pay something else. The day after payday is a great day to do this. And the date should be far enough ahead of your due date that the bill is paid and posted on time. It might hurt that first month, but it will even out once you get used to the new schedule.

No matter what, make sure you satisfy your mortgage payment obligation. Most everything else on your credit report can be repaired or negotiated, but not your mortgage lates. Don’t wind up in a situation where you’re ready to dance but too late to the party. Plan ahead, and as always, protect your financial future today.

Life After Bankruptcy: Yes, You Can Get a Mortgage!

It’s possible to put your credit back on track and qualify for a mortgage, even after bankruptcy.

Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But it’s not all doom and gloom! It’s possible to put your credit back on track and qualify for a mortgage, even after bankruptcy.

Here’s how:

• Find the right lender. Unlike mainstream lenders, non-conforming lenders will usually provide financing after a bankruptcy, if you can demonstrate that you’re now a good credit risk and have sufficient income. I can help you with that.

• Wait a couple of years. Most lenders won’t approve a mortgage until two years after bankruptcy.

• Have a good reason. If bankruptcy was due to factors beyond your control, you’re more likely to get a mortgage. Reasons such as poor money management and excessive debt aren’t looked at favorably.

• Save a down payment. Most lenders will consider a 10% down payment (your own funds, not borrowed or a gift), or even 5% in some instances. However, the higher your down payment, the lower your interest rate will be.

• Re-establish good credit. Get a copy of your credit report from Equifax, Experian or Trans-Union, and work on building a recent record of on-time payments on major bank or credit cards. Missing a payment at this stage could lead lenders to decline you. By rebuilding your creditworthiness, you can raise your credit score, which will lower the rate you’ll end up paying.

• Work to keep your rate low. Most lenders charge a higher rate for previous bankruptcies, and some charge extra fees. You can keep your rate as low as possible by waiting for two years after discharge, re-establishing good credit, raising your credit score, saving your own down payment, maintaining good debt servicing ratios, and demonstrating a long term history of job stability.

• Don’t do it alone. As your mortgage professional, I can coach you on how to improve your credit score over time and help you source an affordable mortgage despite bruised credit. If you—or someone you know—would like a free, no obligation consultation, call me today!

7 Tips for Establishing Credit for Home Equity & Mortgage Loans

Your credit score will always be a key ingredient for low interest rates when qualifying for a mortgage or home equity loan.

According to Experian, a credit score is a number lenders use to help them decide: “If I give this person a loan or credit card, how likely is it I will get paid back on time?” The information from your credit reports is used to create your credit score. Your credit score will always be a key ingredient for low interest rates when qualifying for a mortgage or home equity loan.

Before applying for a mortgage or home equity loan, get your free credit report from each of the three major credit reporting agencies (CRAs): Experian, Equifax, TransUnion. Under federal law, you are entitled to one every year. Order online at annualcreditreport.com, or call 1-877-322-8228. Check to make sure someone else’s information isn’t mixed into your report. If so, contact the CRA immediately and have them delete it.

Then, follow these tips to help you establish credit and build your credit score:

1. Establish checking and savings accounts and maintain them responsibly.

2. Piggyback on someone else’s good credit by being added to a credit card as an “authorized” (joint) user.

3. Get someone to co-sign a loan for you (e.g., financing a car, or other secured loan) and make your payments on time.

3. Apply for student loans and make your payments on time.

4. Apply for a credit card or a secured card. Make sure the issuer reports to all three CRAs, otherwise the card won’t help you build your credit.

6. Apply for one gas card and one department store card to add to your credit mix.

7. Use your credit cards regularly, but wisely. Make all payments on time because the two most important factors in your score are whether you pay your bills on time and how much of your available credit you actually use.

Establishing and maintaining good credit will make buying a home a lot easier for you. You’ll be able to get a good fixed rate loan instead of having to settle for a variable rate subprime loan. It will also help for times you may need a home equity line of credit for home improvements or a home equity loan for debt consolidation, including paying off student loans.

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