Category: Financial

Boost Your Credit Score With These 5 Actions

Boosting your credit score can be done quickly with these 5 actions.

Photo of the words "credit score" being spelled out with scrabble tiles for an article about boosting your credit score.

  1. Check over your credit report and dispute any errors that you see. Once any errors are corrected, your score should quickly improve.
  2. Request a limit increase on a credit card; this will raise the amount of credit available to you and have a positive impact on your score.
  3. If a credit issuer will not give you an increase in your credit limit, consider opening a new credit card account and not using the card.
  4. If any debt accounts are in collections, work on negotiating those balances and getting them paid off.
  5. Be added on to someone else’s credit card account as an authorized user.

 

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Understanding Your Credit Score


Credit score graphic to discuss what doesn't affect credit scores.
  • Location: The place that you live doesn’t have any bearing on your credit score. Even if your hometown statistically has bad credit, all that matters if how you handle your finances.
  • Employment: On some occasions, information about your employment may be on your report depending on what is reported to each bureau. Although employment information may be present on your report, it is not used in calculating your score. Even if you are unemployed, that will not reflect on your credit score unless you start to miss payments.
  • Income: This isn’t used in determining your credit score, although lenders may ask you for your income when applying for a loan. Lenders may also be able to estimate your income using clues found on your report such as the size of your mortgage.
  • Age: Although age itself doesn’t officially factor into your score, the length of your credit history does. The longer a credit history is, the better.
  • Marital status: You and your spouse have separate credit scores, unless you apply for a joint line of credit. Also, if you add your spouse as an authorized user on a credit card or if you co-sign on a loan for them, that will affect your credit.
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Checking Your Credit Before Purchasing A Home

 

Checking your credit score


Before purchasing a home you need to meet with a lender to see about qualifying for a loan. Lenders will use your credit score from your credit report to see if you are a responsible borrower and therefore if you qualify for a loan with them. Credit reports are put together by three separate agencies, Equifax, Experian, and TransUnion.  Each of these agencies puts together information from your credit history and, using a formula put together by the Fair Isaac Corporation (FICO), determines your credit score. Each of your scores will be slightly different and lenders usually use your middle score when analyzing your credit history.

Your credit score is used to determine the rates and conditions of your loan. If you have a higher credit score,  lenders see you as a low risk investment meaning that you probably won’t have difficulty paying back the loan and they will offer you a lower rate with good conditions. If your score is on the lower side, lenders may see you as a high risk investment and may offer you a loan with a higher interest rate. The maximum score is 850, although anything over 800 is pretty rare (only about 10% of applicants have a score above 800), any score in the 700’s or higher is considered excellent and will usually get you a lower rate, and anything in the 600’s can get a little more complicated. A score of 680 is still considered good but if your score falls below 660 some lenders may start denying you a loan.

If your credit score is on the low side or lower than you expected-don’t worry too much. Your credit score changes over time and there are several ways to improve it such as making all of your payments on time and paying down existing debt. To know your numbers, you can head over to Credit.com and use their free Credit Report Card every month to see where you stand.

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All About Closing Costs

 

Photo of a home for an article about closing costs.
Closing costs are the fees that are charged by lenders and third parties related to the purchase of a home. What exactly makes up closing costs? Below is a break down of the different components:

 

  • Escrow/Attorney Fees: Some states require third party escrow companies handle real estate closings while others allow attorneys to perform the function. Title companies, title agents, lenders, brokers, and real estate agents are allowed to handle closings and/or escrows depending on the state. These fees are usually split between the buyer and the seller.
  • Title Insurance: There are usually two types that need to be purchased-the lender’s policy and the owner’s policy. The title company or a lawyer will research the title to ensure there are no liens against the property or unidentified owners. These policies protect both the lender and the new owner for the full value of the property. In most cases the seller pays for the owner’s policy and the buyer pays for the lender’s policy.
  • Transfer or documentary taxes: These are paid either to the state, county, city, or a combination depending on the state. The government agency gets their piece of the pie during this transaction.  This is also called a reconveyance tax.
  • Recording Fee: Paid to the county for recording the deed, which shows ownership of the property.
  • Settlement or closing fee: This is usually split between the seller and the buyer and it covers the costs charged by the escrow company, lawyer, or whoever handles the transaction’s financial transfers.
  • Brokerage Commission: The fee you contractually agreed to pay for the selling of your home.
  • Pest Inspection: Most lenders require a pest report to ensure the property is in good condition. This fee is usually paid by the seller and they may be responsible for fixing areas that have been damaged by termites, carpenter ants, dry rot, fungus, etc. In many cases these repairs can be negotiated.
  • Septic Inspection: If you have a septic tank, the sales contract will likely require you to have it inspected.
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5 Ways To Lower Your Mortgage Payment


Photo of cash for an article discussing ways to lower your mortgage payment.

 

  1. Get rid of your PMI: PMI is the lender’s protection in case you default on your loan and cannot make your payments. Typically borrowers that can’t put down at least 20% are required to have PMI since they are seen as a riskier investment. If you live in an area that has seen rising home prices and have been in your home for at least 2 years, speak with your lender about dropping your PMI. This can save you an average of $195 a month for a $200,000 loan.
  2. Lower your PMI: In January 2015 the government announced lower PMI rates for buyers with FHA loans. New homebuyers will be able to take advantage of these lower rates and existing homeowners may be able to refinance and lower their PMI rate.
  3. Refinance: Refinancing to lower your PMI is not the only way to refinance your loan. Taking advantage of lower mortgage rates or switching from a 15 year loan to a 30 year loan can save you thousands of dollars. Speak with your lender to discuss options available to you.
  4. Buy down your rate: If you are purchasing a home, speak with your lender about the possibility of buying down your rate. If you are able to, putting down more money initially to buy a lower interest rate can save you a substantial amount of money over the course of the loan.
  5. Find a tenant: If your home has an extra room, especially with a private entrance, consider taking on a tenant.
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When Can A Buyer Purchase After A Short Sale?

Photo of an approval stamp on a mortgage application for an article about buying after a short sale.

Since the turnaround of the housing market began, many buyers are asking how long they have to wait after a short sale to purchase again. Here are the general guidelines broken down by loan type:

  • FHA loans: If a borrower is not behind on their mortgage at the time of the short sale (mainly transferees that didn’t or don’t have a choice) they are eligible to purchase again. Buyers cannot short sell and purchase a similar home in the same area. If the borrower is in default at the time of the short sale, they need to wait 3 years from the short sale close date before buying again. If the short sale property had an FHA mortgage, the 3 year wait period doesn’t begin until FHA pays the claim. This date can be provided by a lender.
  • FHA exceptions: Exceptions may be made for circumstances that occur beyond the borrowers control such as job loss, a medical emergency, death of the wage earner, etc. The credit before the event needs to be satisfactory.
  • Conventional loans: Wait time for conventional mortgages is dependent upon the down payment. All waiting periods start from the closing date of the short sale.

 Waiting Period                       Down Payment/LTV requirements (Loan
to value ratio)
2 years                                   80% maximum LTV ratios
4 years                                   90% maximum LTV ratios
7 years                                   95% maximum LTV ratios
* All waiting periods must credit score qualify with traditional credit.
Non-traditional credit isn’t accepted.

  • Conventional loan exceptions: Similarly to FHA loans, conventional programs can be applied to conventional loans for circumstances that are beyond the borrowers control and that can be documented.  A 2 year waiting period is allowed with a 90% LTV or maximum LTV per conventional matrixes.
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Financially Smart Home Improvements

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Photo of crown molding in a hallway to illustrate different home improvement projects.
  • Add molding: Crown molding and chair rails can make a room look more polished and can give a space a more expensive look. There are hundreds of options for molding and it can be made to look simple or more detailed. There are even options for using flexible materials such as foam that would make installation much easier. The project is relatively inexpensive as well, costing about $1.50 per square foot if done yourself vs. $8 per square foot if done professionally.
  • Put in quality ceiling fans: Ceiling fans are now available in a wide variety of colors and styles so they can look good as well as help homeowners save money on their cooling bills.
  • Add trees: Trees not only look good and can add to the curb appeal of a home, but they also save money on energy costs, lower stress levels, protect a home from the elements, and can prevent erosion from roof runoff.
  • Install a patio: Patios are an effective way to add onto your home’s square footage without actually doing major construction to the home itself. Homeowners can expect to get back 30%-60% of their investment on a patio. Keep the patio simple and functional; don’t add on many high end upgrades such as an outdoor kitchen if yours would be the only one in the neighborhood.
  • Do energy-efficient upgrades: The value of energy-efficient homes continues to rise, so take advantage of completing any energy saving upgrades that are available. One way to save energy in your home is to convert your wood burning fireplace to a gas one. Gas fireplaces have been reported to have energy-efficient ratings as high as 77% while their wood burning counterparts have about a 15% rating. Not only do gas fireplaces save energy, they are also attractive to buyers; about 39% of homebuyers report that a gas fireplace is desirable or necessary in a future home.
  • Get creative with storage: Storage is always a good thing so finding ways to add storage in your home is a great feature. Think creatively when adding storage; add storage space in between wall studs by opening up drywall, hang platforms from the ceiling in the garage that hold storage, etc.
  • Exterior lighting: Lighting the outside of your home spotlights it, shows off it’s features, and can keep burglars away. Not only is exterior lighting attractive to buyers (90% say it’s a desired feature) but you can expect to recoup 50% of your investment in hard wired light fixtures.
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Credit Score Upkeep

Image of a credit score rating scale to illustrate credit score upkeep.

Credit score upkeep is vital to maintaining a positive financial outlook. There are a few things that can be done to make it easier to keep on top of your credit. Putting a spending alert on your credit cards can let you know when you are approaching using 30% of your available credit for that card. Using more than 30% of your available credit can have a negative impact on your credit score so staying below the 30% mark is important.  Taking advantage of free annual credit reports is also a good idea; keeping track of what your actual score is can help you to make changes to spending habits when necessary. If an error is found on your credit report, such as a missed payment that is incorrect, follow up with the credit reporting agency and get the error taken care of. Even one reported missed payment can make a huge dent in your score. If you find there are several errors on your credit report, the process to dispute all of them may be overwhelming so getting help from a credit repair company may be helpful. These are just a few examples of things that can be done to keep your credit score healthy. If you are interested in refinancing or getting a new home loan, keeping on top of your credit score is very important so you can take advantage of the best interest rates offered.

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15 Year Mortgages-Are They Worth It?

Are 15 year mortgages a good option?

Many homeowners are refinancing their home loans to take advantage of lower interest rates and some are going to 15 year mortgages to pay off their loans faster. A 15 year loan often comes with a lower interest rate but a higher monthly payment. There are a few factors to consider before jumping into a shorter loan:

  • Homeowners that have a steady and predictable income and/or want and need to pay off their loan faster may be a good candidate for this special loan.
  • The total cost of a 15 year loan is usually less than the cost of a 30 year loan and once the loan is paid off, lot’s of income is freed up.
  • 15 year loans have a larger monthly payment than their 30 year counterparts which may be difficult for some homeowners. Those with a budget that allows for a larger mortgage payment may want to look into these shorter loans.
  • If you want to try a 15 year loan but you aren’t confident you can make the larger mortgage payments, do a 30 year loan but make 15 year loan payments. This way you can pay down your loan much faster but you are not obligated to make the large payments. The only downside to this is that the 30 year loan will most likely have a higher interest rate.
  • Typically a good candidate for a 15 year loan is a homeowner who is close to retirement and doesn’t want to be making mortgage payments once they do retire.
  • No matter what loan type you choose to go with, shop around for the best rate and be sure to fully understand the terms of your loan.

Hand writing out the word mortgage to illustrate points about 15 year mortgages.

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Improving Credit Scores

Credit scores are very important regarding obtaining loans and getting the best interest rate possible. Is your score lower than you would like? Do you think it’s nearly impossible to improve your score? Think again! Here a just a few ways to get your score to where you want it to be.

Scrabble tiles spelling out "Credit score" to discuss how to improve credit scores.

What factors into credit scores?

  • The easiest way to see an increase in your credit score is to take a look at your credit report and catch any errors that there may be. If an error is found, contact the credit bureau to have the error removed. Some errors may have a large impact on your score while others may leave a small dent but all errors should be taken care of.
  • Always pay your bills on time.  Paying bills in a timely manner makes up a big chunk of your credit score. Late payments can stay on your credit report for 7 years and a skipped payment can bring down your score more than 100 points! If you know that you will be late on a payment it’s always a good idea to contact your creditor and let them know but there are no guarantees that the late payment won’t be reported to the credit agency.
  • Another huge component of a credit score is credit utilization. One way to bring up your credit score quickly is to pay down credit card balances, especially those that are near their limits. Ideally, 30% or less of your available credit should be used; if balances are paid down to 30% or less of the available credit you may see an increase in your credit score in as little as 30 days!
  • If you are unable to pay down your credit card balances to 30% or less of the available credit, consider looking into a debt consolidation loan which may improve your score.
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