Thursday, February 26, 2015

Credit Scores That Impact Your Ability To Buy A House



There are a lot of steps and requirements involved in getting yourself into a new home.  Making sure your credit is as good as it can be is one of them.  If you’re looking to get in shape for a low interest loan of 3.5% down, having good credit is key in locking down the best rates.  There are 5 factors involved in calculating your FICO credit score, each weighed by importance.

Payment History ~35% weight
This is the heaviest weighed consideration when considering your credit score.  Paying your debts and bills on time is paramount to keeping your credit healthy.  Recent late payments will weigh heavier than delinquency in the past.

Amounts You Owe ~30% weight
Try to keep the amount that you owe as low as possible.  Your recurring debt, such as credit card payments made monthly help keep that number low, reflect well on your credit and can increase your score.

Credit History ~15% weight
Having debt that you have continually paid down over a length of time shows consistency.  It sends a message to potential creditors that you are an excellent candidate for a loan.

New Credit ~10% weight
If you’ve recently opened a new line of credit, that can reflect negatively on your score.  Credit is like a fine wine, you need it to be aged a little to have value.

Types of Credit ~10% weight
It goes in this order as far as most impactful: 1. Mortgage Debt,  2. Installment loans, such as a car payment,  3. Revolving debt, credit cards, etc.  As long as you pay these debts in a timely manner or as requested these kinds of debts improve your credit score the most.

You don’t have to be entirely debt free to have good credit.  Following these guidelines when it comes to boosting your FICO score can either maintain or improve it.  Not everyone can have a perfect credit score, but they can certainly reach for the highest they can attain to earn the best mortgage loan available to them.

To learn more about your Fico credit scores, visit MyFico.com



Monday, February 23, 2015

Use The Low Interest On Your Home Line Of Credit For Other Debts

   

What entices people to buy something expensive that they don’t necessarily have the cash up-front to pay for like a car?  Low to 0% financing, right?  Right!  While mortgage rates aren’t at zero, they certainly are at the lowest they’ve been for years, including the lowest MIPs available as well.  This is something you can take advantage of in more ways than one.

     If you have equity in your home, getting a cash-out finance at such a low rate could be helpful to ease your other, higher interest-rate debts such as credit card debt, or student loan debt.  Remember mortgage interest is tax deductible, the debt rates are not. 
  
     The key to making this work for you is to have a higher rate debt you need to pay off already in mind, offsetting the actual cost of interest.  With this method, you could not only save more money, but potentially give you credit a boost as well.  Not all mortgages are the same, so please consult a mortgage professional.

Monday, February 16, 2015

What's better? Saving or Paying Off Your Home?

     
     If you have a savings account, you’re probably making less than 1% interest and you’re paying income taxes on it.  Barely pennies on the dollar.  However, if you decide to put that money towards your house payment, that little extra can save you more than you’d earn in your savings account, you’d be earning at the mortgage interest rate. Just adding that little extra to your principal contributions to your mortgage payment can shorten your term, build equity and save on the interest.

     For example, say you have a 30 year term mortgage for $175,000 at 4% interest rate.  If you contribute just $100 more, you’d be saving 5 1/2 years on your mortgage term, and more than $25,000 on interest.  If you can find somewhere to shave off $100 from your monthly budget and reappropriate it towards your mortgage payment, you could be really saving a lot in the long run. Let's face it, these days $100 doesn’t get you a lot, but $25,000 adds up to a college fund or a new car.

     Improve the investment in your home by reducing its cost.  Becoming debt free is an admirable goal for any homeowner and putting your money to work for you is a good decision you can take to the bank! 

Friday, February 13, 2015

#Trend - Small Homes For Retirees!



Tiny homes are all abuzz these days!  Adult retreats from the world, to contemplate and reminisce, read and relax.  While you might not be ready for such an extreme, downsizing in your golden years is a smart move, literally and for your money.  Roughly 12.5% of the population in the US is over 65.  The birds have flown the coup, and more than likely lots of “things” that have accumulated in your home over the years.  Downsizing is a good way to unburden yourself from all that “stuff” that no longer has a use, but financially put you in the black.  If you’re considering this option, the happy outcome would be to walk away with more money, simplify your living and reduce costs in home-maitenance and utilities.  Here are some pitfalls to avoid to make the most of your experience.
   
Don’t overestimate the cost of your home.  Just because you heard that the house down the street sold for an exorbitant amount, doesn’t mean yours will.  You don’t actually know what the seller is walking away with, what the condition of the real estate market was at that point, or how the condition of that home compares to yours.  What you want to do is get in contact with a few real estate agents that can give you a proper valuation of your home, or hire an independent appraiser.  You want an unbiased assessment at current market values.  A realtor who gives you the rosiest sounding number however, may just really want your listing.  Contacting multiple sources can give you a ballpark estimate that you can be comfortable with.  You can also do some internet research on sites like zillow.com or realtor.com that tell you what homes in your area have sold for recently.
   
In the same optimism as hoping your home sells for the highest price, buyers think that they’ll get a steal on their next home.  Don’t underestimate the cost of your downsized home.  Again, you can use the same online tools as above for houses and areas you’re potentially interested in.  Make sure you spend time in any new areas you’re considering.  If it's a different location altogether, visit there in different seasons to make sure you’d be happy there all year round.  A two bedroom home with all the latest appliances and conveniences may approach the price of a four bedroom home without the latest amenities.
   
Consider the tax implications of selling your home.  Unless you make a fortune on selling your home (Here’s to hoping!) you most likely won’t owe income taxes on your earnings.  The IRS excludes up to $500,000 and singles $250,000 in taxable gains.  If you don’t end up owing on your gains, other tax considerations include high property or income tax in popular retirement destinations.  The tax laws for selling your home are laid out in IRS Publication 523.
   
Make sure you do your research and crunch the numbers before making the jump to downsizing.  It can be a smart move to add to your finances for retirement, however, if you don’t calculate the financial possibilities you could break even, or worse, lose money.  Move into retirement comfortably knowing you made the best decision with your money.

Tuesday, February 3, 2015

It's Time To Refinance!



As I’ve said over and over since New Year’s day, mortgage rates are low!  Down from 4.39% a year ago and currently holding at 3.8%, the Fed announced at their meeting last week that they were going to keep rates steady.  Essentially this is to encourage growth in the housing market that we have yet to see, however, it’s a great opportunity for another market, and that’s the refinancers. 

With a few minimums to meet, those homeowners currently paying over 4.5% with good credit and 20% equity are eligible to refinance.  If you can shave half a point off, its worth investigating further.

Start out by talking to you existing lender, they don’t want to lose you, and already have all of your information, so they might be willing to cut you a deal!  But don’t just settle for that first offer, compare it with at least two other lenders and be sure to include a credit union option.


If you refinance to a lower payment, you still might end up breaking even in the total cost of your home.  Think about the bigger picture.  If you need those lower payments now, it might be worth it to you.  However, if you currently have a 30 year loan that you’ve paid into for x amount of years and you refinance to another 30 year loan, you’re adding on additional years of payments.  Overall, you might just end up with the same cost.  With the bigger picture in mind, you will probably end up saving more if you sign up for a shorter term loan.  Mortgage rates just dropped in mid-January for 15 year loans.  It might not make much of a difference in your monthly payments, but ultimately could save you tens of thousands of dollars by shaving off a few years of payments.