The Lending Coach

Coaching and teaching - many through the mortgage process and others on the field

What’s the Difference Between a FICO Credit Score and a Free Online Score?

There’s a fair amount of confusion in the marketplace regarding the credit score used when applying for a mortgage. There are some sites, like Credit Karma, that provide free scores – available at a click.

Many consumers are shocked to find out that their Credit Karma or other online score doesn’t match their FICO score, once they’ve talked with their mortgage lender.

But what are the differences and which credit scores do mortgage lenders actually use?  The answer might surprise you.

I can’t stress strongly enough that potential borrowers should always work with the right mortgage lender when accessing credit for their next mortgage application.

Another thing to keep in mind, the strategy for achieving a good score remains the same, regardless of the type of scoring: paying bills on time and keeping balances low. Conversely, paying late or using too much of your credit limit lowers your score.

For more, see The Fortunate Investor, Tim Parker at Investopedia, and Brian Nelson at The Finance Gourmet

Here’s a primer on how different companies calculate these scores – and what your really need to know about credit.

What is it?

First, a credit score is nothing more than a number calculated from information in a person’s credit report. The idea behind a credit score is to determine via algorithms how good of a credit risk someone is without actually have to read through the details of a lengthy credit report.

The resulting number is only as good as the math that created it. The more statistically accurate the number is, the better the score is.

As most are aware, if you are applying for a mortgage, your credit score will be a critical part of the process. You could get rejected with a credit score that is too low. And once approved, your score will determine the interest rate charged. Someone with a 620 might have to pay an interest rate that is as much as 3% higher than someone with a 740.

The Credit Karma Model

If you get a free credit score from a website like Credit Karma, you are receiving the VantageScore – which is not the same as the FICO score, used by mortgage companies. I’ll outline the distinct differences later in the discussion.

Credit Karma, according to its website, believes borrowers have a right to know and view their credit scores.

The logic is that armed with this knowledge: potential borrowers are more likely to pay their bills on time and avoid going into collections for debt, and might waste fewer resources of the companies with whom they do business.

With that said, it’s not entirely an altruistic effort. Credit Karma is a for-profit business; sure, it is offering you something for free, but it is making money elsewhere. There really is no such thing as a free lunch.

From Tim Parker at Investopedia:

“The company’s revenue model for customers, posted online, reads: ‘When you access the free credit score, Credit Karma will show personalized offers to you based on your credit profile. These offers are from advertisers who share our vision of consumer empowerment. If you wish to take advantage of our offers, it is up to you. Credit Karma tries to give the power and the choice back to the consumer.’”

“Credit Karma makes its money in two ways. First, along with your credit score, it places advertisements on the page and hopes that you will respond to those ads. Second, because Credit Karma is pulling your credit score, its system knows a lot about you, and it can carefully tailor ads to your spending habits”

“More targeted ads are better for advertisers (they don’t waste money putting ads in front of people who would never use their services) and usually allow the advertising company to charge more per ad. With more than 40 million active users, Credit Karma has a healthy revenue model.”

The FICO Model

When most people think of credit scores, the probably think of FICO scores — the ones produced and sold by Fair Isaac Corp. They’ve been around for decades, and they’re used in about 90% of loan decisions.

Fair Isaac was the first company to popularize the concept of a credit score and is really only one credit score that matters in the mortgage world.

Over the years, it has demonstrated that its credit score algorithm is accurate enough statistically for financial investors to use it in determining risk. When it comes to actual lending, the gold standard is the FICO score.

However, the company was forced by Congress to provide a little bit of transparency into the process of calculating a score by providing some general information as to what a FICO is based on, and just as importantly, what it is not based on.

Starting from there, numerous entities have tried to develop an algorithm for creating credit scores that generates a similar score to the official FICO score. Doing so requires reverse engineering the mathematics that go into the score. No one has exactly duplicated the score, but many alternate scores provide a close approximation.

Differences in Models

One of the main differences is the calculation of how recently a credit account was used. Under the FICO system, accounts have to have been active in the last six months for their data to be fed into the algorithm. VantageScore takes a more comprehensive view and looks back more than 24 months, before churning out a final number.

Image courtesy of The Fortunate Investor

Another big difference is the way in which VantageScore and FICO go about using alternative data. VantageScore, for instance, includes things like utility and rent payments in its calculations, so long as they’re reported.

Both entities differ in another important way too: they way they deal with paid-off collections. Paid-off collections stay on your credit report for seven years, but VantageScore disregards them for scoring purposes.

However, the most popular FICO product does not, and will take into account any paid-off collections on your credit report. Clearly, this could significantly impact your score.

Finally, the reporting methods differ in how long they take before they calculate your credit score. FICO needs at least three to four months in order to come up with a score whereas VantageScore claims it can produce reliable statistics after just 30 days.

Of course, whether lenders believe any of this is up to them. Some might prefer a longer run in before relying on a credit assessment, others might just want something as quickly as possible, no matter how provisional it might be.

In Conclusion

Knowing your “real credit score” when you are not applying for credit is not very useful. Your score changes every day, so even if you get your official, 100% accurate, FICO score on Monday, by Friday your score may be up or down several points.

In other words, don’t stress out about the exact number. Instead, focus on making the number go higher, or at least stay the same.

Here’s a great piece on how to dramatically impact your credit score for the better – 5 Ways to Raise Your Credit Score Today.

With that said, it’s the FICO model that’s utilized for mortgage related purposes. Although Credit Karma’s VantageScore might give you a decent ballpark score, it won’t matter when applying for a mortgage. Make sure to know your actual FICO score prior to applying for a home loan – and I’d be happy to help you along the way!

Off-Season Workouts – What Young Players Can Learn

Chicago Cubs outfielder Kyle Schwarber had a down year in 2017 – he even spent some time in the minors after having struggled during the summer.

After the season, Schwarber decided that he would do whatever he could during the off-season to prepare for the 2018 season – and it began by getting his body in the best shape possible.

His mornings begin in the gym and end with him swinging a bat. In between, his diet has morphed into the most healthy of his career.

I’d highly recommend you check out each video on the ESPN site here…..

The video/article gives perfect examples of specific drills that Schwarber does to get himself ready for the 2018 season.

Of course, Kyle is a professional athlete and has the time and resources to make this happen (and I completely understand that most youth and high-school players do not) – but don’t miss the point here.

Schwarber has a detailed plan and sticks to it months prior to the season.  He’s set goals for himself and will not be denied.

It’s this mindset and willingness to plan ahead that will put him in the best position to succeed next season.

Do you have a plan to get ready for 2018?  Strengthening, conditioning, flexibility, as well as skill related work?

There are plenty of options online to help you get started – you can click here for my Lending Coach site under the “Baseball” category to find more training related articles and blog posts.

 

2018 Housing Forecast – Sales and Appreciation

Now that 2018 is here, let’s take a look at what we can expect in the housing market.  Experts are predicting some positive shifts moving into 2018, including an ease in the housing inventory shortage.

The latest report from realtor.com shows the market will begin to see more manageable increases in home prices and a modest acceleration of home sales. Analysts from the real estate listings website also predict Millennials will begin to increase their market share of homeownership in 2018.

Here’s the 2018 Housing Appreciation Forecast from the experts at the MBS Highway:

Here’s the forecast from the National Association of Realtors:

A few highlights:

Inventory shortages will drive the housing market

Low inventory will continue to push up home prices and potentially be a barrier for first-time homebuyers who struggle to save for a down payment.  With that said, many low-down payment programs will help this segment.

Many homeowners will remodel rather than sell

In addition to higher housing starts, some experts are saying more homeowners will sell their homes and partially alleviate low inventory issues.

Some homeowners, despite having high confidence about being in a seller’s market, will continue to stay put. Instead of buying a new home, homeowners will refinance and invest in remodeling efforts to make their current homes feel and look brand new.

Builders will turn their focus to entry-level homes

Economists have said over and over again that increased residential housing starts, especially at the starter home level, are the key to bringing home prices down.

Housing starts have been well below the 50-year average of 1.2 million, but many economists expect builders to finally hearken to the call of first-time and lower- to middle-income buyers yearning for more affordable options.

If you have more questions about getting into that new home in 2018, don’t hesitate to contact me, as it would be my privilege to help!

 

Tips on Interest Rates and Mortgage Shopping

During the home buying process, one key component for borrower consideration is the mortgage interest rate. As many know, rates vary widely from lender to lender.

You might wonder if the lowest rate is the best way to go…but please know there are other factors to take into consideration besides an advertised rate.

With that in mind, here’s a list of tips to help give the buyer confidence as they enter down the path of home ownership or refinancing a current home loan. The single best thing a potential borrower should do is to reach out to a trustworthy mortgage lender!

Do Your Research as You Compare Lenders

Be wary of rates that seem too good to be true. If a rate is far lower than most others, there may be significant extra costs involved – remember, there’s no such thing as a free lunch!

Be skeptical of lenders that have little to no reputation. Check the web for testimonials, run some Google searches and find out mor about them and the firms they work with. Consider how many years the lender has been in business and any complaints or bad reviews online.

If your lender can’t provide you with a solid list of references and referrals, they might not be the right one for you!

Education is Key: Learn About Loans and Rates in Order to Compare Them

It’s important that buyers decide what their goals are regarding that home purchase and whether you need a fixed or adjustable interest rate. A fixed interest rate means that the rate stays the same throughout the life of the loan. An adjustable rate starts off lower and then increases gradually, usually annually, but not beyond a maximum amount.

Talk to trusted industry experts, then with family or friends about what types of home loans they have had and what their experiences were with each type of loan and lender to get a better idea of what might work well for your situation.

Look Beyond the Actual Percentage Rate

Learn about the Annual Percentage Rate (APR) and points. The APR is the cost of credit, expressed as a yearly rate including interest, mortgage insurance, and loan origination fees.

With that said, the APR isn’t necessarily the best benchmark to utilize – find out more about that here….there really are other factors that weigh into this equation.

It’s important to know whether points are included with the APR as it will affect your costs of the loan. A rate may be lower, but may include points, which you will pay for and should account for when comparing home loan interest rates.

Look into other fees that are included with the loan. These might include Lender Fees, Appraisal Fee, and Title Services Fee to name a few.

In Conclusion

Taking the extra step to educate yourself on interest rates and your potential lender will really help you gain a better understanding of the process and options available.

I would be happy to give you the tools and information you need to make wise choices during your home buying journey. Got questions?  Don’t hesitate to reach out to me, as I’d be happy to answer any questions as you might have!

Down Payment Strategies for First-Time Home Buyers

For many would-be buyers, the down payment is the only thing keeping them from owning a home. Most have a good paying and consistent job – some are even working to pay down debt.

Right now, mortgage rates are still remarkably low, home prices have been increasing steadily, and rental rates are getting out-of-hand. 

With that said, it’s always best to first reach out to an experienced lender to find out more about the different options available.

Here’s a link to a great NerdWallet article from Hal Bundrick that outlines some strategies to break down this home buying barrier.

It doesn’t always take 20% down

If you’re a first-time home buyer, the down payment hurdle you have to clear may be quite a bit lower than you think. Traditionally, lenders have asked for 20% down, but there are many, many low down payment options are available, especially to first-time buyers.

Mortgages guaranteed by the Federal Housing Administration, Department of Veterans Affairs or Department of Agriculture can be “no-to-low” down payment loans.

In fact, mortgages backed by the VA and the USDA — for those who qualify — usually don’t require a down payment at all. A funding fee is charged on VA loans, but even that can be rolled into your monthly loan payment.

FHA-backed loans are available with as little as 3.5% down. With that said, buyers will have to pay mortgage insurance to help lenders defray the costs of loans that default.

Conventional loans, which aren’t backed by the government, also offer low down payment programs to first-time buyers. In, fact, down payments of just 3% are common, especially if you are a first-time buyer.  Again, buyers really should reach out to lenders that understand these programs and how they work.

Family down payment gifts

Getting help from family members might be another way to go.

If you’re getting a cash gift for down payment, you’ll want to be sure that you “receive” your cash gift properly. Should you receive your gift improperly, your lender is likely to reject your home loan application.

It’s imperative, therefore, that you follow the rules of cash-gifting for a home.

The down payment gift rules are (1) the gift must be documented with a formal “gift letter”; (2) a paper trail must be shown for the gifted monies as they move from the giver’s account to the home buyer’s account; and (3) the gift may not be a loan-in-disguise. Home buyers are permitted to accept up to 6% of a home’s purchase price in the form of a cash down payment gift.

Using retirement accounts

If you have a retirement funds set aside, you should be able to tap a portion of it to help with the down payment. Employer-sponsored 401(k) plans often allow for penalty-free hardship withdrawals or loans.

One option used by many with a 401k is to take out a loan. Generally, your loan can be up to $50,000 or half the value of the account, whichever is less. As long as you can handle the payments (and yes, you have to pay back this loan), this is usually a less expensive option than a straight withdrawal. Though you will pay interest, you won’t pay taxes or penalties on the loan amount.

Contact your 401(k) plan administrator to find out more.

A few things to know about 401k loans:

  • Since you’re incurring debt and will need to make monthly payments on the loan, your ability to get a mortgage may be affected.
  • The interest rate on 401k loans is generally about two points above the prime rate. The interest you pay, however, isn’t paid to the company – it goes into your 401k account.
  • Many plans give you only five years to repay the loan. In other words, if you borrow a large amount, the payments could be substantial.
  • If you leave your company, you may be required to pay back the outstanding balance within 60 to 90 days or be forced to take it as a hardship withdrawal. This means you’ll be hit with taxes and penalties on the amount you still owe.
  • If payments are deducted from your paycheck, the principal payments will not be taxed but the interest payments will. Since you’ll be taxed again on withdrawals during retirement, the interest payments will end up being double-taxed.

State and local down payment assistance

There are programs in every state, implemented by government agencies, nonprofits, foundations and even employers. Assistance can have a geographic focus as wide as the nation or as narrow as a city — all the way to hyper-local initiatives targeted as tightly as neighborhoods, and even house by house.

Down Payment Assistance (DPA) programs are designed to make new homes affordable for low to middle income buyers.  These mortgage programs can be used whether you are a first time buyer or fifth time buyer (unless there is a state specific program that sets its own rules).

In general, it’s good to keep in mind that many of these programs are government based.  Stipulations may be placed on your purchase like, a requirement that the unit remains owner-occupied or when you decide to sell the property or you may only be able to sell it to another qualified low to moderate-income buyer. Also, the interest rates for these programs are generally higher than other options.

Programs change often; they’re funded, defunded and sometimes re-funded.

Going old-school and saving

There’s always the spend-less-than-you-earn-and-save-it strategy to building a down payment fund.

More than likely, it may take a combination of strategies to get you into a home with a decent down payment — and still have a little left over to cover those unexpected home-ownership expenses. Make sure to reach out to me for more information!

Both Buyer and Seller Confidence Is Up: Now is a Great Time to Make That Home Purchase

Are you thinking of buying a home, but not sure if now is the right time to become a homeowner? It’s easy to dream about owning that new place….but it’s not always easy to know if your timing is on the mark.

The Data

New data shows rising confidence from buyers and sellers alike.

More players on either side of the residential real estate market feel that the time to act is now.

Knowing that many want to pull the trigger on a home purchase or sale can inspire others to do the same.

The link below is from Harvard University’s estimates for home prices in 2018 – I’d invite you to check it out…

Harvard University research: the future of home prices in 2018

Right now, it’s important to learn the facts about what you can afford and the mortgages available to you.

Find out more here from The Mortgage Reports and Erik Martin

Now IS the time, say 77 percent of Americans

Per Martin’s article, a recent survey by the National Association of Realtors (NAR) yielded some very interesting trends:

  • 77 percent of people feel that right now is a good time to buy a home; 48 percent believe this strongly
  • 62 percent of renters believe that now is a good time to purchase a home. That’s up from 52 percent tallied last quarter and 60 percent one year ago
  • 80 percent of respondents who currently own a home, those older than age 55, those with incomes in excess of $100,000, those who live in rural areas, and those in the South and Midwest think that now is a good time to buy a home
  • 78 percent think it’s currently a good time to sell a home. That’s up from 63 percent measured one year ago
  • Those owning in the West (83 percent) are most likely to believe that now is a good time to sell a home

Other reasons why confidence is up

The Mortgage Reports’ Martin also states that Robert Johnson, president/CEO of The American College of Financial Services, points out that there’s another reason people feel more confident about buying or selling today.

Image source: NAR and The Mortgage Reports

“They feel wealthier because the stock market has gone up over the past 10 years,” he says. “This gives them confidence that makes them believe now is a good time to buy or sell.”

Martin states that another factor is at play, too.

“Perhaps most significant for buyers is that interest rates have been near historically low levels for an extended period of time,” Johnson notes. “Many buyers fear that rates are likely to rise in the future. Thus, they believe that now is a good time to buy. They want to make a purchase before rates rise.”

A Call To Action

The news that more owners think now is a good time to sell should be music to the ears of would-be buyers.

“This could help loosen up inventory. It’s another reason to be optimistic, as housing supply continues to be tight in many markets,” says Jessica Lautz, the National Association of Realtors’ Managing Director.

She notes that many sellers will need to become buyers themselves after unloading their home. The fact that buyer confidence is up can make them feel more secure about selling and then purchasing.

Next Steps

To improve your chances of buying a home sooner, Lautz suggests a few tips.

“You want to get your DTI  — debt to income ratio — down,” she says. DTI is a your total amount of recurring monthly debt payments, including credit cards, student loans, auto loans and mortgages, versus your gross monthly income.

“Many lenders prefer a DTI lower than 43 percent. You can lower your DTI by increasing your income and reducing outstanding debt.

“Also, check your credit report and make sure there are no surprises there. Correct any errors you see,” says Lautz.

“Be sure to consult with experts you can trust. Ask your Realtor and mortgage professional about affordable loan programs in your local community you may be able to qualify for,” she adds.

Final to-dos

In addition, be patient and realistic.

“Don’t rush into any decision you’re not sure of,” cautions Lautz. “Buying a home takes time. Make sure you look at prospective neighborhoods carefully and expect to have competition for that perfect home.”

Lastly, be prepared to make sacrifices and compromises.

“We often find that recent successful home buyers have to compromise on one or more things, including location, price or size of the home,” she says.

 

Mental Toughness For Pitchers

“The pitcher with a winning mental approach will appear to rise to the occasion in big games, when in reality he is the one who successfully keeps his head while others around him are distracted by the moment.”

“Mental toughness allows the pitcher to remain focused on these things regardless of all the chaos going on around him.”

“The mentally tough pitcher can focus on the things he can control and not let the things out of his control distract him.”

So says legendary college baseball coach Joe “Spanky” McFarland. McFarland coached 38 years at the college level – 18 at James Madison University. Equally impressive, he coached 55 players on their way to the big leagues (including Kevin Brown of the Los Angeles Dodgers).

His book, Coaching Pitchers, is a great read – and I’d encourage you to purchase it here.

The following is an excerpt from that book…

Many say that mental toughness is an ability that is born into a pitcher, but with some work and effort all pitchers can create a winning mental approach. In this chapter we will look at identifying problems and then offer advice, drills, and practice ideas to help pitchers create a winning mental approach.

Factors the Pitcher Can’t Control

The first step to becoming mentally tough is to figure out the factors you can control as a pitcher and those things that are out of your control. The list of things out of your control is much longer than the list of things within your control. First you determine those factors out of your control and then you learn to deal with them.

  • Weather conditions – these include wind, rain, sun, cold, and heat. You can dress appropriately, but you cannot do anything to control the weather.
  • Field conditions – these include wet field, dry field, poor field, dimensions of the field, poor lighting, and the height and condition of the mound.
  • Teammates – a pitcher cannot control his teammates and their play. They may score 0 runs when you pitch; they may score 10 runs. This is true of errors too. Your team may field great when you pitch or they may make several errors. You can’t do anything about errors or run support.
  • Umpires – as umpires determine their own strike zone,  the pitcher will need to adjust to that zone for the day. A pitcher can’t control whether or not the umpire makes all the correct calls during a ball game.
  • Unruly fans and bench talk – fans or opponents will try to disrupt a pitcher by verbally abusing him. You can’t control fans; when you acknowledge their remarks, it gets even worse. Sometimes opposing teams will try to get a pitcher out of his game by bench talk.
  • The batter – once the baseball leaves a pitcher’s hand, the batter has the control. The batter decides to swing or take. The batter will determine whether to hit the ball hard by his swing.

The pitcher may affect some of the factors with his performance, but he cannot control them. So he should not worry about them. A pitcher cannot focus on or spend time and energy on things out of his control.

Factors the Pitcher Can Control

A pitcher with a winning mental approach knows that there is only one thing a pitcher has complete control over, and that is himself. Mental toughness starts with the realization of this concept.

Be concerned with those things and only those things that a pitcher can control: himself and his actions. A pitcher must first learn to be responsible for himself and his actions.

  • A pitcher cannot control the weather, but he can pitch accordingly and give himself a better opportunity to be successful.
  • A pitcher cannot control the condition of the field, but he can pitch accordingly and give himself a better opportunity to be successful.
  • A pitcher cannot control the play of his teammates, but he can help himself by playing good defense and being positive in the dugout; he can pitch accordingly to ensure his own success.
  • A pitcher cannot control umpire decisions; but he can make adjustments to different strike zones, affect umpiring decisions by his actions, and pitch accordingly to ensure his own success.
  • A pitcher cannot control what is being said about him or to him from opposing teams or fans, but he can choose whether to let them affect his game.
  • A pitcher cannot dictate what the batter will do with a certain pitch; but by studying hitters and learning weaknesses, he can pitch accordingly and ensure his own success.

Instead of focusing on things out of his control, a pitcher must take each set of circumstances and pitch or act accordingly to make himself succeed.

Each pitch and each situation involve a new set of circumstances. How he reacts to each new set of circumstances or situations is within his control, and this is where he can start to make a difference.

Assess the situation, make the appropriate decisions, make the appropriate pitch or play accordingly, and then accept responsibility for the result. Understand that the pitcher starts and affects the action of the game with each pitch more than any other single event in the game; this is crucial for a winning mental approach.

The pitcher is the only player on the field who has the power to act. All other players on both teams only have the power to react. Use this power and act accordingly to each new set of circumstances and each new situation to help ensure your own success.

The key to a winning mental approach is not to focus on the things a pitcher cannot control but to be consumed by the things a pitcher can control.

Telling a pitcher not to worry about the fan in the fourth row who is riding him hard or not to worry about the umpire whose strike zone appears to be on wheels and is moving around is as effective as telling someone not to think about an elephant that’s standing in the room.

Instead, create a pitcher who is consumed with the next pitch and is focused on what he can do in the next set of circumstances, no matter the current situation.

The Top 7 First-Time Homebuyer Mistakes

Not Knowing Your Credit Score

The importance of your credit score in the mortgage process is super important. In most cases, this distinction will draw the line between owning a house and renting one.

Even if you have a near perfect sense of financial responsibility today, your credit past can come back to bite you. You will have a hard time getting a home loan if your recent record shows problems with on-time payments, or if there’s an error in your credit report.

It’s truly best to perform a credit check with your chosen lender before you move forward.

If you go ahead and apply for a mortgage without checking your credit score, you could end up doing a lot of searching for nothing and/or paying a lot more than you expected.

 

Not Obtaining Mortgage Pre-Qualification

Some people are anxious to shop for a house and want to do it quickly, before they are financially able to afford it.

If you have already started talking to sellers before sitting down with your mortgage lender, you are making a mistake. In fact, not many sellers will want to work with you if you promise them a certain amount and then can’t fulfill that promise.

To avoid any disappointments, it’s wise to have your home loan pre-approved first, then go ahead and look for a house to buy.

 

Failing to Budget for a Home Loan

As most people know, home ownership is almost always a cheaper alternative to renting in the long run. There are just so many benefits of owning a home, from historical appreciation to the tax benefits. With that said, in the beginning, it can be a bit pricier.

Therefore, it is important to budget for a home loan, beforehand. You need to determine whether your income can accommodate this expense or not.

If you find yourself unable to afford making monthly payments on your home loan, it would be a mistake to try to own a house at this time.

 

Overlooking the Home Resale Value

Remember, this home you are purchasing is considered an asset, and real estate has historically appreciated over time.

You should never overlook the resale value of the home you intend to purchase.

What you need to do is to ask yourself several questions such as: Will it be easy to sell this house? Might I be able to keep it and rent it if I want to upgrade later? Will this house appreciate over time if I decide to buy another one? Is it situated in a preferred neighborhood?

Settling on a Verbal Agreement

Many first time buyers can be a little too trusting. Just because you met the sellers and/or their agent and came to a verbal understanding does not mean a deal is in place. Misunderstandings are guaranteed to happen when agreements are made verbally.

With that said, make sure that you and the seller get everything down in writing to avoid future miscommunications and utilize a standard contract.

This way, you will have the legal high-ground should the seller fail to keep their word.

 

Indecision

As much as it is unwise to rush into making a purchase, it is equally imprudent to take too long to decide if a particular property is right for you.

If you take too long to make a decision, another homebuyer will take advantage of your indecisiveness and buy that home that you’ve had your eye on, but didn’t make an offer.

Since market trends change from time to time, you could also find out that the house you took too long to buy has a new (and higher) price tag attached to it.

 

Forgetting the Costs Associated with Owning a Home

Remember, a home requires money to maintain. Its important to know that upkeep and maintenance costs don’t end on the day you finish your last mortgage payment.

It’s important that you prepare for other costs for maintaining a safe, comfortable, and secure home.

Also, there are other ancillary costs to plan for – such as association fees, insurance, taxes, utilities, maintenance and major/minor repairs, etc.

 

So, If you can avoid these pitfalls commonly made by first-time buyers, the home buying journey will be much, much easier and enjoyable.  Don’t hesitate to reach out to me for help, as I’ve helped countless first time buyers navigate this process!

Key Factors Lenders Consider When Evaluating Applicants

Mortgage approval can be a lengthy, detailed process.

As you can imagine in today’s environment, lenders scrutinize their mortgage applications, along with a myriad of other documents, in order to determine if borrowers are low-risk and able to repay the loan.

With that said, here are some key factors that all lenders will consider….and make sure to reach out to your chosen mortgage lender to have them walk you though this process:

Income

In order for any lender to make sure that the borrower will be able to repay the loan, they will check the applicant’s income to determine loan eligibility. Essentially, this will help determine if the applicant can afford a home loan and budget for monthly payments.

If the applicant is self-employed or commission based, lenders will evaluate them differently than standard W-2 buyers.  Their income may be considered “unstable” and a more detailed earnings history may be required.

More often than not, the last 2 years of tax returns will tell the income story for these types of borrowers.

Credit Score

An applicant’s good credit score can demonstrate to the lender that they are financially responsible and can qualify for a mortgage, sometimes with significantly lower interest rates.

While a good credit score is a good indication that an applicant can pay off their loan, liens and civil judgments on credit reports can impact scores. Lenders will check with public records to determine if they have any liens or judgments against them that could affect their ability to qualify for a mortgage.

Financial Assets

An applicant must have sufficient assets and collateral they can use for a down payment, if they are purchasing a home. For example, liquid assets like stocks and a savings account can be used to secure higher lines of credit.

Since the property that an applicant purchases will often be used as collateral if they end up foreclosing, the value of the property must match the applied-for loan.

Essentially, lenders are trying to identify these 3 key criteria when it comes to lending to a particular borrower. Today’s rules are determined, for the most part, by the underwriting guidelines of Fannie Mae and Freddie Mac, as the majority of today’s mortgages a sold through these enterprises.

Right Now Is A Bad Time To Be A Renter

I know this isn’t great news if you are not a homeowner, but this might be the worst time to be renting in the last 40 years.

The average monthly cost of rent nationwide takes up over 35% percent of American income, the highest cost burden recorded since the late 1970s.

As a matter of fact, the number of renters dedicating at least half of their income toward housing hit a record high of 11 million people in 2014, according to the annual State of the Nation’s Housing Report from the Joint Center for Housing Studies of Harvard University.

 

2015 and 2016 saw the biggest surge in new renters in history, according to the report, bringing the number of people living in rental units to around 110 million people — or about 36% of households.

Unfortunately, there’s still more bad news. Apartment vacancy rates have dropped so low that forecasters are predicting that rents could rise, on average, 4 to 6 percent this year. Interestingly, rents are rising faster than that in many metro areas even as overall inflation is running at little less than 2% annually.

The nationwide problem threatens to get worse before it gets better. Apartment builders are building more units, potentially creating supply that is beginning to crest. With that said, demand still exceeds the supply, especially for affordable housing.

The Solution

One of the great underlying opportunities here is that buying a home is considerably cheaper than renting. Renters interested in reducing expenses and collecting tax benefits should absolutely talk to a mortgage lender prior to signing that rental contract.

Mortgage underwriting guidelines have been slowly loosening and those that were denied for a mortgage last year may qualify this year.

At the very least, your mortgage lender can provide the guidance needed to make this your last year as a tenant. Whether your issue be credit score, how your income is calculated, student loan debt or other debt-to-income ratio issues, your lender can layout a roadmap for you to follow.

Here is a link for Advice for First Time Home Buyers. Read it over when you have a minute and see what’s in store!

Stick to the plan, the road-map, they provide and chances are you will be a homeowner by 2018. Your actions and commitment right now might just save you thousands every year.

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