Holiday Spending Without an Extra Cent
Time is a precious commodity, but it’s even more treasured because it is
fleeting. As soon as a day, an hour, or even a minute passes, it is gone
forever.
While that might be stating the obvious, it’s an important concept to reflect
on during the often-hectic holiday season. So this holiday season – regardless
of which holiday you celebrate or if you celebrate any – remember to focus on
and spend time with the people around you, including family, friends, and even
coworkers or clients.
When TV personality and kid expert Art Linkletter was asked about the idea of
spending time with loved ones this is what he said:
“I once asked a five-year-old what he would take with him if he were going to
Heaven. He replied, ‘I would take my parents because I think that up there they
would have more time with me’… nuff said.”
The good news is, it’s actually possible to slow time down in a way that
seems to lengthen special events like a day of fishing with your child or a
special dinner with a good friend. The key is to consciously honor the person
and the event as you experience it. To be in the moment.
In the days and weeks ahead, remember to recognize the people you care about.
You don’t need to do or say anything specific, nor do you need to spend any
money. You simply need to spend time with them. So consider setting aside two
hours one day for coffee with a friend. Or if you have children, make special
plans to take each one out individually for their own dinner. You can even set
aside a short amount of time each day to call some of your special clients to
see how they’re doing and personally wish them a happy holiday. And when you do,
avoid distractions like technology or worries about what else you need to do
that day.
After all, once the moment passes, you can go back to that checklist of
things to do. But you can never go back to that moment in time.
Economic Calendar for the Week of December 05 – December
09
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Slow and Steady Wins!
It’s been said that “slow and steady wins the race.” And
when it comes to the Jobs Report for November, it seems that the labor market
continues to improve at a gradual pace. Read on for the details…and what they
mean for home loan rates.
There was good news, as the headline number for job creations in November came
in at 120,000, with 140,000 private jobs offsetting government losses. What’s
more, some upward revisions to the two previous readings added 72,000 more jobs
than had been reported.
Perhaps even more important, Hourly Earnings grew by just 0.1% – a number
that suggests no threat of wage-based inflation. Remember, inflation is the arch
enemy of Bonds and home loan rates because when inflation rises, investors in
Bonds demand a higher yield to offset the lost buying power inflation imposes on
a fixed payment. And as home loan rates are tied to Mortgage Bonds, this would
mean home loan rates move higher. So the Hourly Earnings number was good news
for Bonds and home loan rates.
Catching the markets by surprise was a rather sharp decline in the
unemployment rate to 8.6%, the lowest unemployment rate we’ve since March of
2009. While this is good news on the one hand, part of the decline stems from
the fact that 315,000 people were removed from the workforce because they
totally gave up looking for work. And with 13.3 million Americans still out of
work, more improvement is certainly needed here.
Similarly, the labor participation rate (which is currently hovering at a
30-year low at 64) needs to move above 66 or it will be difficult for the
economy to grow fast enough to lower our budget deficit. In fact, last week Bond
ratings firm Fitch issued a stern warning to the US, saying that our AAA rating
will be in jeopardy if we don’t soon do something to rein in our own
ever-growing budget deficit.
It is good news that we’re seeing some slow and steady improvement in
the labor market…and coupling this with other recent positive economic signals,
means we are not near a recession at the moment. But our economic health
remains fragile, and any external shock from Europe could easily disrupt the
economic improvement we are seeing.
The bottom line is that the uncertainty out of Europe – and the prospect of
additional Mortgage Bond buying (QE3) from the Fed – should continue to support
Bonds and home loan rates as they will benefit from investors looking for a safe
haven for their money. However, it is also unlikely that Bonds and home loan
rates will improve much further. Inflation, while not yet a problem, is still
elevated…and if it continues to creep higher, this will limit any improvement
home loan rates may see.
Better Mortgage Rates Start With Better FICO Scores
If you plan to use a mortgage for your next home purchase, you’ll want to keep your credit scores as high as possible. Credit scores play an out-sized role in determining for which mortgage product you’ll qualify, and to which rate you’ll be assigned by your lender.The higher your credit score, the lower your mortgage rate will be.
What Is A Credit Score?
We can apply this theory to consumer credit, too. A person who has recently paid his bills on-time should continue to pay his bills on-time in the near-future.
This is the basis of credit scoring; using your past to predict your future.
To mortgage lenders, your credit score represents your likelihood of making on-time mortgage payments for the next 90 days. “90 days” matters because, after 90 days without payments, a homeowner falls into default.
Higher credit scores correlate with lower default risk which explains why people with high credit scores tend to receive lower mortgage rates than people with low credit scores. This is true across all loan types, including conventional, jumbo, and FHA mortgages.
Like most else in finance, those with the lowest risks get to pay the lowest rates.
Lenders Use The FICO Scoring Model, Exclusively
There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers a bevy of credit-scoring products, available for purchase on their respective websites. Prices range from “free” to several hundred dollars.
None, however, are particularly relevant in the home-buying process. This is because the nation’s mortgage lenders rely on a different credit model — the FICO model.
FICO is named for the Fair Isaac Corporation. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings. Today, FICO scores are omnipresent to the point that people generically refer to all credit scores as “FICO scores”.
This is akin to calling all adhesive bandages “Band-Aids”. FICO is the brand name — not the product.
FICO scores range from 300-850.
Credit Scores Change Mortgage Rates
Your FICO score has always influenced the mortgage rate for which you’re eligible. In 2008, though, it began to change your loan fees.
In response to major mortgage market losses, in April 2008, both Fannie Mae and Freddie Mac introduced something called Loan-Level Pricing Adjustments (LLPA). Loan-level pricing adjustments are “discount points” added to a mortgage rate, based on a specific borrower’s risk to the lender.
A discount point is a loan fee, paid at the time of closing. 1 discount point is equal to 1 percent of your loan size.
Example : A $300,000 mortgage that’s assessed 1 discount point will have $3,000 in extra fees due at closing.
Fannie Mae and Freddie Mac know that low credit scores correlate to high default rates so, like an insurance policy, they assigned the highest costs to the highest-risk borrowers.
Assuming a 20% downpayment, look at how discount points change based on credit score. Fees get massive for FICOs under 700.
- 740+ FICO : There are no discount points required. This loan is “low risk”.
- 720-739 FICO : 0.250 discount points are charged to the borrower, or $250 per $100,000 borrowed
- 700-719 FICO : 0.750 discount points are charged to the borrower, or $750 per $100,000 borrowed
- 680-699 FICO : 1.500 discount points are charged to the borrower, or $1,500 per $100,000 borrowed
- 660-679 FICO : 2.500 discount points are charged to the borrower, or $2,500 per $100,000 borrowed
Now, not many new home buyers just have that kind of extra cash just laying around. Therefore, as an alternative to paying discount points with cash, many choose to “roll up” the fees into their respective mortgage rates. In general, 1.000 discount point can be “traded in” for a 0.250 increase to your mortgage rate.
Example : A consumer with a 680 FICO score is required to pay 1.500 discount points at closing, or can alternatively accept a mortgage rate increase of 0.375%.
This is why it’s important to keep your credit score high. There are real dollar costs for having scores under 740.
Improving On Your Credit Score
If your credit score is not as high as you’d like, the good news is that you can take steps to raise it — sometimes without even changing your spending habits.
3 Last-Minute Real Estate Regrets – and How to Combat Them
Any time you make a major commitment, financial decision or move to the next step in your life, there’s a chance you’ll have regrets at the last minute. Just as brides and grooms commonly experience cold feet before they walk down the aisle, many a home buyer has found themselves sitting at the closing table, pen paralyzed over paper, mentally cataloging their last-minute regrets.
The first step in dealing with last-minute regrets is to understand that they are totally normal – even rational. The fact that you’re fixated on your deal, or that you’re scared you’ve made the wrong decision is a sign that you are treating this transaction with the gravitas it deserves.
If you are buying or selling a home, here are three last minute regrets you might encounter, and some ways to rethink and counteract them.
1. I left money on the table – could have gotten more (or paid less) for it. This regret showcases a classic case of buyer’s – and seller’s – remorse. The day an offer is signed, sometimes within moments after acceptance, sellers second guess whether they might have been able to get more cash if they’d negotiated harder, and buyers beat themselves up over not going in lower or holding out against the seller’s counteroffers.
Conquer real estate remorse by understanding that the universe in which you pay or receive anything other than what you and the other side actually DID agree to is a hypothetical fantasyland. It doesn’t exist. Your decision made sense when you made it, and did actually result in a deal – unless you realize that the home does not actually suit your needs or you receive new information that changes your understanding of the home’s value (i.e., later disclosures or inspection reports reveal significant problems) within the time frame you have for resolving such issues, a deal is a deal.
So stop torturing yourself and let it go. Be content with the fact that you bought a home at or near the bottom of the market, or that you got your home sold at a very tough time to do so, and turn your attention to the next phase.
2. I’m overwhelmed by the 30-year mortgage commitment. Thirty years seems like a long, long time. But here’s the rethink: you need to live somewhere forever, and I hope that your forever will last 30 years times three! So, unless you have access to free housing somewhere, here are your options:
- You can rent a home and pay rent to a landlord every month for the rest of your life, or
- You can buy a home with cash, or
- You can use mortgage financing to buy a home, and make payments on it over time.
So, in fact, the commitment you make to paying on a 30-year mortgage, which you have the power to pay off entirely over time, is less onerous and lengthy than the alternative: paying monthly rent ad infinitum. While it’s true that your mortgage binds you to a particular property unless and until you can sell it or otherwise move on, if you select your home wisely you will (a) relish that stability and/or (b) select a home with good prospects for resale in the long-term. (If you think you’ll want or need to move in less than a 7- to 10-year time frame, you might be well-advised to continue renting rather than buying a home.)
The fact that you take out a 30-year mortgage (or a 15-year one, for that matter) does not bind you to that time frame; many homeowners elect to pay their mortgages off early. Putting a plan in place to shave off five or 10 years from your mortgage commitment by paying extra toward your mortgage principal on a regular schedule is one way to control your regret and put it to good use.
3. I can’t believe I went through all of my cash cushion! In this relatively new mortgage era, lenders are requiring buyers to put some of their own skin in the game, by requiring down payments in a way they once did not. Beyond that, the vast majority of the down payment assistance programs that once helped buyers meet these requirements are now gone (state, local and employer-funded programs are the last bastions of down payment help). As a result, today’s buyers frequently spend a couple of years saving up their cash, and optimizing their credit creating strong financial habits and getting used to having a fluffy cash cushion along the way, then end up writing a couple of checks – earnest money deposit, increased deposit and cash to close – that wipe nearly the whole thing out in 45 days or less.
And that can be traumatic. But if your spirits are feeling as deflated as your savings account when you write those checks, keep in mind that you are investing that money in a home that your family will be able to live and flourish in, and eventually either pay off or have equity in, if you continue your responsible financial trajectory. Additionally, this is precisely the reason you saved the cash in the first place.
Finally, due to your timing vis-a-vis home prices and interest rates, you are getting the most home-buying bang your hard-earned bucks could have bought anytime in the last decade or so. And that’s really something to be proud of – not to regret.
Fixed Mortgage Rates Hold Steady
30-year fixed-rate mortgage (FRM) averaged 4.11 percent with an average 0.8 point for the week ending October 20, 2011, down from last week when it averaged 4.12 percent. Last year at this time, the 30-year FRM averaged 4.21 percent.
15-year FRM this week averaged 3.38 percent with an average 0.8 point, up from last week when it averaged 3.37 percent. A year ago at this time, the 15-year FRM averaged 3.64 percent.
5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.01 percent this week, with an average 0.6 point, down from last week when it also averaged 3.06 percent. A year ago, the 5-year ARM averaged 3.45 percent.
1-year Treasury-indexed ARM averaged 2.94 percent this week with an average 0.6 point, up from last week when it averaged 2.90 percent. At this time last year, the 1-year ARM averaged 3.30 percent.
Frank Nothaft, vice president and chief economist at Freddie Mac, reports, “Mortgage rates remained relatively unchanged this week amid mixed economic data reports. Retail sales were up 1.1 percent in September, almost four times the pace set in August, but consumer sentiment was down in October, according to the Thomson Reuters/University of Michigan index. Finally, in its October 9th regional economic review, the Federal Reserve reported that overall economic activity continued to expand in September, but contacts noted weaker or less certain outlooks for business conditions.”
“The home construction industry had some good news for a change. The National Association of Home Builders/Wells Fargo Housing Market Index jumped four points in October, the largest one-month gain since April 2010. Housing starts sprang up 15 percent in September, largely driven by a spike in multifamily starts to a level last seen in 2008. Building permits on 5-or-more unit buildings fell by 13 percent, however, suggesting that the multifamily building pickup may be temporary.”
Wall Street Journal & Forbes: It’s Time to Buy A Home
Wall Street Journal & Forbes: It’s Time to Buy A Home
by The KCM Crew on October 17, 2011 ·
We believe very strongly that now is the time to buy a home. Some will say we are just saying this to create real estate transactions and commissions. Because of that, today we will quote what those outside the real estate profession are saying to the people who look to them for financial advice.
The Wall Street Journal
Last week, in an article entitled It’s Time to Buy That House, the WSJ told their subscribers:
“It’s an excellent time to buy a house, either to live in for the long term or for investment income…Houses aren’t the magic wealth creators they were made out to be during the bubble. But when prices are low, loans are cheap and plump investment yields are scarce, buyers should jump.”
In an article two weeks ago, MarketWatch.com (the on-line blog for WSJ) told their readers:
“Now could be the best time in history to buy a home.”
Forbes.com
In a report to their subscribers, Capital Economics reported that:
“The previous declines in house prices and the more recent drop in mortgage rates to record lows have created an unusual situation in which the median monthly mortgage payment is more or less the same as the median rental payment.”
Why is this important? Last week, Forbes explained to their readers:
“If rents simply kept up with inflation at a 3.2% annual increase, a $1,500 rent payment would cost that renter nearly $900,000 over the next 30 years. The same $1,500 payment made to their mortgage would be only $540,000 (because the payments don’t increase with inflation).”
They went on to explain the advantages of homeownership during retirement:
“Even with a dismal 1% growth rate over 30 years, a $300,000 property would appreciate well over $100,000 giving the homeowner an additional nest egg for retirement…
At a time when retirement is becoming much more challenging, an extra $400,000 (or likely more) can make a major difference not to mention the impact of NOT having to pay a mortgage. How much less would you have to save for retirement if you didn’t pay the mortgage?”
Bottom Line
When the iconic financial newspaper and the iconic financial magazine say that it now makes financial sense to purchase a house, perhaps it’s time to buy a home.
We hope you found this information useful. Thank you for visiting www.BoiseMultipleListings.com.
6 Steps to Saving for a Down Payment
Research has shown time and again one of the greatest hurdles to
home buying is coming up with the, sometimes dreaded, down
payment. Here are a few softer practical strategies to help you clear
the hurdle and come up with the cash you need.
6 Steps to Saving for a Down Payment
1. Plan for progress – Your Dream Budget.
Saving isn’t all dollars and cents, it’s a little emotional. That’s why we
recommend finding a few visuals to remind you why you’re in the
saving game. They could be photos or a list of features of your dream
home. Whatever your focal point, we recommend storing it close to
your budget, wallet, or in the place you pay bills to remind you of what
you’re working for.
2. Slow your Spending – The 10-day rule.
The biggest enemy of spending is the impulse buy. So, for purchases
over $25 exercise some self-discipline and give yourself 10-days to
decide, Is this purchase for a real need or a want?
3. Avoid the Convenience.
Your mother was right, good things take time…and so do cheap
things. From coffee on the go to lavish meals out, most consumers are
paying quite a bit for convenience. Try to avoid your local convenience
stores and become friends with your kitchen to help your bottom line.
4. Drink More Water.
According to the National Soft Drink Association, the average
American Household spends about $850 annually on sweetened
drinks. In contrast, water costs just a penny per gallon. Do this and
you’ll start your life as a homeowner not only richer, but a bit healthier
too.
5. Track Expenses – Face Your Truth.
We scoured the net and all the experts agree, the only thing more
powerful than creating a budget is actually reading and tracking it. We
suggest you schedule some time with yourself every week to face the
truth about your spending habits and find new ways you can save.
6. Eliminate the excess spending.
Locate the excess in your budget and slash it. Trade the gym for home
workouts, expensive movie nights for checking out free videos from
the library, and keep an eye out at the end of each month for services
you aren’t using.
Saving money for a home purchase is a BIG DEAL. If you’re a first time home buyer be sure to aks us about the American Dream loan program. You need only $1000 into the whole transaction. Sound good? Call us. 208-697-7673.
We hope you’ve found this article helpful. Thank you for visiting www.BoiseMultipleListings.com. Please tell a friend.
5 Steps to Avoiding Buying a Money Pit
What did Cary Grant, Tom Hanks and Richard Pryor have in common? They all starred in hilarious movies with plots built around their money pit homes (“Mr. Blandings Builds His Dream House” [1948], “The Money Pit” [1986] and “Moving” [1988], respectively).
But buying a home through the Boise MLS or the Chuck Jones Group or another agency that turns out to need much more extensive (and expensive) repairs than originally thought is only funny in the movies. In real life, buying a money pit can nearly drive a new homeowner to lose their mind – and their shirt.
Fortunately, there are a number of real-life strategies that real-world buyers can act on to prevent their own home-buying plot line from including an unfunny lemon of a home. Here are 5 of my personal favorite steps that will help you avoid buying a money pit.
1. Attend Inspections. There are lots of things you can outsource and rely on your professional representatives to do when you’re buying a home, but I’d suggest you keep attending your home, pest and roof or other specialty inspections on your own personal to-do list. When you’re there in person, the inspector is able to physically show you the items that may need repair, and give you their professional opinion of how serious and large needed repairs may actually be at a level of clarity a written report may lack.
Sometimes, written inspection reports convey minor items (like reversed hot and cold faucets) as a red-flagged health and safety issue, and more major items (like a problematic foundation) as something that needs further inspection. If you are at the inspection in the flesh, you can brief the inspector on what level of cost and effort you consider major (and vice versa), and ask them to help you understand roughly where the property overall and any individual repairs needed fall, from that perspective. We recommend Sherlock Homes Inspections 208-466-0242.
2. Read the Reports and Disclosures. Attending your inspection is just the first step. Reading the inspectors’ reports is critical to avoiding a money pit – both the reports generated by your own inspectors, and any reports and disclosures provided to you by the seller. Things to watch for and investigate further in the sellers’ reports and disclosures include:
- repairs the seller completed themselves,
- repeated repairs to the same home system,
- water and leakage issues, and
- any reports of non-functioning mechanical or other systems in the home.
In your inspectors’ reports, make sure to notice:
- repair estimates they offer,
- items that seem like they will have to be completed soon (versus upgrades you can do over the long run)
- items that seem like they might run into big ticket dollar amounts, and
- especially watch for any recommendations that you get a specialist to look at something – some of the largest potential repairs are often dealt with in this way by a general property inspector.
It behooves you to follow up on your reading of reports and disclosures by working with your agent to:
- list your questions and concerns,
- ask the inspector(s) and seller any follow-up questions you have,
- obtain follow-up inspections (including obtaining an extension of your inspection contingency, if needed) and
- obtaining reliable repair estimates.
3. Get Multiple Repair Bids. While your pest, roof and other inspection specialists may offer you a repair cost estimate with your report, most general property inspectors do not – many states even forbid it by law. Money pits often occur when buyers take a place knowing it needs what they thought was a little work, that actually turns out to be a much more costly or involved repair, once the actual repair contractor takes a look or starts the work.
Avoid surprises by getting multiple repair bids from reputable contractors while you are still within the inspection contingency time frame of your contract. These repair estimates can also provide the basis for any renegotiation you and your agent choose to initiate with the seller for price reduction, repairs or increased closing cost credits.
4. Stop Overconfidence In Its Tracks. Having managed two extensive remodeling projects myself, I can vouch – unless you are a construction professional (and sometimes even then!), all but the most minor home improvement or repair projects tends to take more time and money to do yourself than you expect at the outset. (With my own two hands, I took down wallpaper and painted a room in January of 2002, and am still experiencing symptoms of post-traumatic stress disorder. One room, people.)
Even if you expect to cut costs by doing some work yourself, I urge you to contact and obtain bids on the repairs and upgrades you plan from actual professionals, so you can at least be armed with the information about what it will cost to get them done if you can’t complete them for any reason.
5. Prioritize Price Reductions and Credits over Seller Repairs. For the most part, I feel that buyers will select their own materials and repair contractors with more care and are generally more deeply invested in ensuring that repairs are completed to their satisfaction than an outgoing seller. If you are negotiating with your home’s seller over repairs that need to happen, discuss with your agent whether it might make sense to ask for a price reduction or a closing cost credit to offset the cost of the repairs so you can have them completed to your standards, and with the materials and by the contractors of your choice, after closing.
We hope you found this information useful. Thank you for reading and visiting our website www.BoiseMultipleListings.com and for shopping Boise homes of sale.
Filling the Hole
As published in the Idaho Business Review by Brad
Carlson
Zions Bank plans to anchor a 15-story commercial building
tabbed for the so-called “Boise Hole” site in the center of downtown,
the bank and project developer Gardner Co. announced Sept. 19.
Construction is expected to start next spring and
conclude in 2014 at the northwest corner of Eighth and Main streets, where the
site has languished for nearly a decade as an open foundation. Zions will move
staff from other downtown Boise buildings and elsewhere to the new structure,
to be called Eighth & Main.
Gardner Co., with offices in Idaho and Utah, in late July
announced plans to buy the site from Lake Tahoe-based builder Robert Capps. Gardner
has several commercial real estate projects in the Boise area, including the
sizable Portico development largely completed at Franklin and
Eagle roads in Meridian.
The new proposal is smaller than its predecessors, and
calls only for commercial space. Previous proposals included residential condos.
Gardner’s proposed Eighth & Main building will have
two floors of retail space, three levels of parking and 10 stories of upscale office space, officials
with the developer announced. No tenants other than Zions Bank were announced for the
253,000-square-foot building. The Colliers International real estate firm is marketing
space in the planned building.
CTA Architects of Boise and Babcock Design of Salt Lake
City are involved in the Eighth & Main project. The developer plans to seek Leadership in
Energy & Environmental Design certification from the U.S. Green Building Council. A
project cost estimate was not released.
Zions is in preliminary discussions with Gardner Co.
about providing financing, said Michael, Zions Bank executive vice president for real
estate. Zions has financed other Gardner projects.
The developer plans geotechnical work and some
remediation on the foundation pit, where Gardner evaluated the extent existing concrete footings
could be used, said Boise attorney Geoff Wardle, who represents Gardner Co.
Gardner Co. plans to submit applications with Boise city
planning officials the week of Sept. 19-23, Chief Operating Officer Tommy Ahlquist said.
Zions Bank spokesman Rob Brough said it’s not known how
many floors Zions will occupy. Zions offices in other downtown Boise buildings, and some
other locations in the Boise area, will move to Eighth & Main, he said. The bank’s
downtown branch also will move. Zions Bank President A. Scott Anderson said the top floor
will be a meeting and boardroom facility available to the public.
Now in downtown Boise, Zions occupies all of the first
and third floors of a three-story building at Ninth and Main streets, and about half the second
floor, said Kelly Robertson, Boise-based senior vice president and director of regional credit.
Zions occupies the entire second floor of a building to the north, at Ninth and Idaho streets.
“We’re committed to growth in this market,” Brough said.
Zions operates 26 branch offices and employs 301 in
Idaho. The bank came to the state in 1997 and has increased its share of deposits here
substantially in recent years, Brough said. The bank has been a consistent leader in Idaho in issuing U.S.
Small Business Administration-backed loans.
Top 5 Credit Score Myths
When it comes to credit, sometimes the largest challenge is the most difficult to surmount: we simply don’t know what we don’t know, so our assumptions and 
inaccurate beliefs run wild and free through our mental real estate. Most of the time, there’s no harm; following finance fundamentals like paying every bill on time, every time, keep us out of credit danger zones.
But when it’s approaching the time to buy, refi or even rent a home here in the Treasure Valley whether tracked on the Boice MLS or by other sources tracking Boise Real Estate home sales relatively small credit score differences can stop you from getting your dream home, and can cost (or save) you thousands of dollars in interest over the life of your loan.
If you’re at a time in your life where it makes sense to invest some time and effort into optimizing your credit score, here are five common credit myths we’d like to help you bust without further ado:
Boise Homes for Sale:
Myth #1: Having lots of cash, a great income, or tons of equity, makes your FICO score less relevant.
Fact: No matter how much cash you have, if you want a mortgage, you must meet the lender’s FICO score guidelines. Of course, if you’re flush with cash, it should be relatively easy to make your monthly payments on time. But if you have come into cash relatively recently or you’re coming off a rough financial patch, lenders don’t not look at your credit score on the theory that your other assets diminish your credit riskiness. Most lenders want nothing more than to avoid having to foreclose on a home, even if the homeowner has other assets.
And the best predictor of whether you’ll default on a loan in the future is how you’ve handled your credit in the past, so your credit score will drive whether you qualify for a home loan and what interest rate you’re charged, no matter how much you make.
Two exceptions: if you buy a home with all cash, or take a hard money loan, which usually requires a much larger-than-average down payment and interest rate, you might be able to bypass credit score scrutiny, but you’ll pay for it.
Myth #2: Having no debt or no late payments means you have great credit.
Fact: Financial responsibility and good credit are two different things. Your FICO score is meant to be a measure of your responsibility when it comes to managing debt, as proven by the fact that you have credit accounts, use them regularly and don’t abuse them.
Having no credit accounts or debts doesn’t give you good credit – it gives you no credit. And on the other end of the credit usage spectrum, being maxed out on various credit accounts all the time, submitting lots of credit applications and other credit moves that indicate you may abuse your credit can actually depress your score. Best practice is to have several credit accounts (student and car loans count!) that you actively and responsibly use on a monthly basis.
Tip: FICO gives a top score to accounts with balances that are 30 percent of the credit limit, so if you can keep your credit card or loan account balances at or around that mark, even better.
Myth #3: Checking your own credit score in advance prevents surprises when you apply for a mortgage.
Fact: Your mortgage originator (broker or banker) must pull their own version of your report from their own provider, and it might have a very different score, rating scale or even different line items than the free or paid report you pulled online. This is why it’s imperative to start working with a mortgage professional as early as possible – a year in advance is not overkill – so you can detect any errors or issues and get their recommended fix in the works with plenty of lead time.
Myth #4: If you’ve had a foreclosure or short sale, your credit report will be damaged for 7 years.
Fact: Derogatory credit items, like late mortgage payments, foreclosures and short sales, appear on your credit report for 7 years, but your credit score can be rehabilitated enough to buy a home or obtain other credit in less time, depending on your circumstances. Your post-short sale or foreclosure waiting period depends on a number of things, including what type of loan you’ll be seeking to buy your next home with, how much cash you’ll have to put down and whether there were any extenuating circumstances involved in losing your home in the first place; some loans allow for an immediate purchase, others require a waiting period of 2, 4 5 or even 7 years after the loss of a home.
Of course, your FICO score is also a key criteria in a post-home loss “buy,” but interestingly enough, the length of time it takes to get your FICO score back up depends on how high it was beforehand. Earlier this year, the New York Times reported that it would take a consumer with a 680 FICO score three years after a foreclosure to bring their score back to that level, while it might take someone with a 780 FICO score (near-perfect) seven years for full score recovery.
And keep in mind that as your foreclosure or short sale ages, its impact on your score will decrease, too.
Myth #5: Short sales have much less impact on your credit score than foreclosures.
Fact: Hear ye, hear ye – short sales and foreclosures have the same impact on your credit score, according to the FICO folks themselves. (The only exceptions are for short sales or deeds-in-lieu of foreclosure where the property was not upside down, which are few and far between, if they’re not just a real estate urban legend!)
However, the number of missed payments you had before your home was lost to foreclosure or short sale might weigh on how gravely injured your FICO score is in the process. At the going rate at which banks are foreclosing on homes – clocking roughly 2 years of missed payments before a home is repossessed – your FICO score could take an even greater hit than if you were able to divest of it via a short sale in 1 year’s time.
TIP: If you’re a first time home buyer I’d recommend checking out US Bank’s American Dream Program. Call Heidi Bateman of US Bank for all the details at 208-373-8704 or Click Here.
We hope you find this information useful. Thank you visiting www.BoiseMultipleListings.com.
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