How to Restore Your Credit Score Quickly

Buying a home is the American dream and you have decided that it is time to start looking into buying a home of your own. That’s great! However, you probably know that there are things you should be doing before you begin your search – but where do you start? The first thing you need to get in order, before you do anything else, is to get a copy of your credit reports. That’s plural – credit reports.

You need to get a copy of your credit reports from all three credit reporting agencies – Trans Union, Equifax and Experian. If you are thinking about buying a house, you may not realize the importance your credit reports hold in getting an approval for your new home.

The mortgage companies are more concerned about your recent buying and repayment history than what may have happened years ago. If you have too many recent late payments or collections, there may not be anything you can do to get approved in the immediate future.

However, there are some things you can do to clean up your report. So in six months to a year or maybe even two years, depending on how bad your credit is and how long it takes you to clean it up, you can apply for a home mortgage and get your approval.

Here are a few things you can do to restore your credit and credit score quickly:

 1. Check your credit reports for errors. Again , that is plural so check all three of your credit reports for errors. If there are mistakes on your credit reports, you will need to start an investigation with the company or the source of the derogatory information. Contact them in writing and make sure you include all supporting documentation proving the information is in fact an error.

 2. Set up a timely repayment schedule. If you have any accounts that you have been late in paying, you will need to begin paying all of them on time. Paying your bills on time for a minimum of six months will go a long way in improving your credit rating.

 3. Collections. Try to avoid having your accounts turned in to collections. A collection is the most damaging of all credit issues. So work out a re-payment plan before your account turns into a collection. A credit improvement agency may be able to help you get your collections erased; but only if the creditor did not abide by all of the laws of the Fair Credit Reporting Act. However, this is generally not the case because most creditors know the laws and how to follow them. So don’t count on this as a quick fix . Most collection accounts will stay on your credit report for a minimum of seven years.

 4. Keep a low balance on all of your revolving credit accounts. Try to keep your balances below 50% of your limit. The lesser the balance the better it looks to potential creditors.

5. Do some soul searching. Try to determine what caused your credit status to get out of control in the first place. Then do whatever you have to to amend your bad habits – if any.

 6. Get a secured credit card. Secured credit cards can be very helpful in improving your credit. There are many things you can do to get your credit report back on track quickly. So talk to your real estate agent for more information about how you should go about doing this.

In the meantime, your Realtor will be able to get you started on your path to home ownership while you are working out your credit issues. Your agent has the experience and the know how to help you get into your new home as quickly as possible. So take advantage of all they have to offer you.

Advertisements

Common Credit Myths You Need to Know Before Buying Your Next Home

If you have good credit and think you won’t have any problem buying a house, you might need to think again.  Most people with good credit have many common misconceptions about their credit and how it could affect their likelihood of being approved for buying a home.  When in fact, having good credit, even extremely good credit, doesn’t necessarily mean you are a good risk in the eyes of a mortgage lender.  Keep reading to learn some of the most common credit myths that could cost you thousands of dollars over the life of your mortgage loan.

1.  Do you have a large amount of cash?  Do you have a fairly high income?  Do you have some reasonable equity in your home?  If you answered yes to those questions, you probably think your FICO score is not a factor.  That is false.  The fact is that your credit score is what determines whether or not you will be approved for a home loan.  It  will also determine what the interest rate will be for that loan.  There are only two exceptions to that rule.  If you pay cash or if you put down a great deal of money on the home.

2.  Are you debt free?  Do you pay all of your bills on time?  If you answered yes to those questions, you probably think you have what is considered good credit.  That is false.  Lenders look at your credit differently than you do.  A lender will look at your FICO score to see how well you manage your debt and your credit.  The lender will look to see if you’re at your limit on your credit cards, and if you are, but you continue to apply for more credit, a lender will consider that credit abuse.

However, if you have credit, but don’t carry any credit balances on the credit you have, that doesn’t mean you have good credit in the eyes of the lenders.  You may find this hard to believe, but you will get a higher FICO score if each month you carry a balance of 30% of your credit limit and you continually make your payments on time.  This is where most people are completely baffled, because common sense, in most people, would tell them that no debt is a good thing, when in reality it’s not.  Go figure!

3.  Have you experienced a short sale or a foreclosure in the past?  Many people believe that if they’ve had a short sale or a foreclosure in the past, they can’t qualify for another home.  That is false.  Remember what we’ve been talking about?  Your credit score is the number one factor in determining whether or not you will be approved for a loan.  So even though the short sale or foreclosure will stay on your Experian and Transunion credit reports for seven to ten years, that doesn’t mean you can’t work on improving your credit score enough to buy another home sooner rather than later.

In order to achieve this, you will need to start paying your bills on time.  It will also require that you have a reasonable amount of money to put down on your new home.  And if you had any extenuating circumstances that caused your short sale or foreclosure to occur in the first place, that should be explained.  This alone could help lead to a more likely approval and quite possibly a lower interest rate.

The bottom line is to save your money and use your credit accordingly.  Take all of these credit tips we’ve given you to get the most desirable loan you can.  Your best bet is to talk with your realtor about buying a new home.  He can then make the proper recommendations for your specific situation.

Your realtor has plenty of experience in dealing with mortgage lenders.  He will assist you in making the necessary corrections that could lead to a mortgage approval and quite possibly the lowest interest rate available for your new home.  Asking your realtor for assistance could ultimately save you thousands of dollars over the course of your loan.

What You Should Know Before You Consider Refinancing

If you have a high interest rate, you may have considered refinancing .  However, you should do some research to learn all you can about refinancing before you proceed.

Here are a few things you should know before you consider refinancing.

1.  Often times the cost of refinancing can offset the savings you were expecting to get .  The average fees range from $1900 to $3650 and this doesn’t include the loan origination fees, PMI or discount points.

2.  In some states, if you refinance your home, your new loan is then considered a “recourse product.”  That means if you default on your loan and the sale of your home doesn’t completely cover what you owe, the bank can seize your other assets.

3.  Your current loan may include a prepayment penalty.  So you will need to consider the prepayment penalty fees you will incur to determine if refinancing your loan is really worth it.

4.  If you refinance your mortgage, you will need to make sure you are able to stay in your current home for at least two to five years to recoup the cost of the refinance; otherwise, you could lose money.

5.  If you have recently refinanced your mortgage and you are considering refinancing your loan again, you will not see much if any savings at all.  It’s not a good idea to refinance unless you can drop your interest rate by at least a point and a half – two points or more is preferable.

6.  Qualifying  for a loan is even more difficult than ever due to the recent housing market debacle.  Therefore, you will need a credit score of at least 720 to get a reasonable interest rate.  Anything less than that will earn you a higher interest rate and it’s possible you may not even qualify at all.  Not to mention the mounds of paperwork you will have to wade through and a long drawn out couple of months to get through the approval process.

Before you consider refinancing, you should talk to your realtor.  In the state of the current housing market, your realtor may be able to find you a more suitable home for less money than it would cost you to refinance your existing home.

Additionally, if you have equity in your home, you could use that as a down payment on your new home, which will better your chances of getting your new mortgage approved.

5 Signs you’re Ready for Home Ownership

1.You Stick to a Budget
Financial experts will tell you that creating and sticking to a budget is a sign of financial maturity. With the over 1.5 million foreclosures in the United States, it’s easy to understand why this is so important. If you have already created a budget and have stuck to it, you’re more ready than the next guy to own your own home. When you follow a budget, you know exactly where your money is going each month. When you know where your money is going, you know whether or not you can afford a home of your own.

2.You Have a Down Payment
The old rule of thumb still stands: Enough money should be saved for a 20 percent down payment on a house. When you put 20 percent down on a home, you immediately have equity built into the property and you negate the necessity of private mortgage insurance. Even with a 20 percent down payment, you should still stay away from home’s that are out of your realistic price range. If you’ve budgeted for a $150,000 house, having 20 percent to put down doesn’t mean that you should look for an $180,000 home.

3.Your Income is Stable
Finding a stable job can be tough to do in today’s economy, but if you have a stable source of income, you can feel relatively safe making an investment in a home. If you are reliably employed, don’t forget to factor in any life-changes that may crop up in the near or distant future. Do you plan to go back to school? Are you going to start a family? Budget for the home you can afford five years from now, not the one you can afford today.

4.Your Credit Score is High
The higher your credit score, the better your interest rate will be. The better your credit score, the more likely you are to be accepted for a loan. If your credit is in excellent shape, you’re ready to buy a home. If, on the other hand, your credit needs some work, whip it into shape before you being the home-buying process. Before you buy a house, your debts should be paid off, any collections accounts should be closed satisfactorily, and your credit score should be in the 700’s.

5.You Have an Emergency Account
Did you know that you should have enough money in the bank to cover at least three month worth of debt? If you have an emergency account, you can feel safe buying a home. Add your estimated mortgage payment, estimated utilities, and any recurring debts that you have, and multiply that number by three. The resultant number is the amount that you should have stashed away in the case of job loss, illness or other financial emergency.

 

If you are thinking of buying a home, make sure that you are 100 percent ready. Re-read the tips above and, if they apply to you, the dream of owning your own home is within reach. If one or more doesn’t apply to you, you have some work to do. Owning a home isn’t a snap decision, it’s a process. In the end, you’ll be glad that you took your time and did it right.

The Facts About Financing A Second Home

Buying a second home is very exciting.  This may be a home in the place where you vacation every year, somewhere that you like to  go and relax and enjoy your time off.   Perhaps you are looking for an investment opportunity.  Whatever the case may be, here are some things to consider when it comes time to buy and finance your second home.

• It is a great time to buy a second home – the mortgage rates are low

• If you have a strong credit history you are guaranteed the best rates

• You can use the equity in your current home as a down payment or closing costs

• Lenders are offering some really affordable loan options right now

• Remember, the guidelines for how much you can quality for is based on 28% of your gross income

• If you are a long term homeowner, you may be able to borrow more than you think

A second home as an investment property is a fantastic idea.  If you are looking for a way to save money for your retirement,  this is it.  A second home forces you to put away money every month in the form of a mortgage payment.  When it comes time to retire, you can sell it or use the income, which could be significant if you have it paid off.

Another reason a second home as part of your retirement plan is a good idea is due to the fact that your investment money is subject to less income tax and the interest and taxes may be deductible.   So planning ahead could pay off in a big way.

If you rent out the property don’t forget about the ongoing expenses such as taxes, insurance, property manager, etc. We recommend that you save enough money to cover a years worth of rental income and maintenance. That way if business is ever slow in renting out the property you’ll always have your emergency fund to fall back on. The good news is if you buy the right house at the right price, your rental property should always stay rented.

If a second home is something your interested definitely talk to your real estate agent about more information on buying a second home. They can give you insight information about making this investment.

Your Home Buying Journey

Here is a step by step guide to help you in your home buying journey

1.  Talk to an experienced Realtor who will help you learn what you need to know about the home buying process. You may need to interview several Realtors before deciding on the best one for you.

2.  Decide if you want to Rent or Buy

3.  Check your credit and begin improving your credit score. Check out our blog from yesterday on the importance of your credit score & tips on how to improve it.

4.  Make a budget and determine exactly how much you can afford to spend on your new home.  Don’t forget that there will be closing costs and other associated fees in addition to the purchase price of your new home.

5.  Study the different types of mortgages and how they work and then decide which one is right for you

6.  Think about where you want to live.  What location is best for you and your family

7.  Do you want to buy a conventional home, a foreclosure, a fixer-upper etc.

8.  You will also need to decide on a mortgage company, home inspector and possibly a real estate attorney or a financial adviser depending on your situation

9.  Research the area you have decided to buy a home.  Drive through the neighborhood at varying hours, check the current prices of the available homes and notate their condition.

10.  Check the crime statistics for that neighborhood

11.  Does the neighborhood have the conveniences you are going to need, such as child care,your bank, your favorite grocery stores and restaurants etc.

12.  How far is your chosen area from where you work now and where you may potentially be working in the future?

13.  Talk to your chosen realtor about supplying you with some home listings that meet your specified criteria

14.  Once you have looked through the home listings, go and look at all the homes you would like to see with your Realtor

15.  After you have chosen a house, your realtor will help you submit an offer

16.  Be prepared to negotiate the deal

17.  After your offer has been approved, you will need to set up a home inspection

18.  You will now need to get your mortgage loan approved

19.  Set a closing date and then close on your new home

20.  Now all you have to do is get moved and enjoy the home of your dreams

How To Restore Your Credit Score Quickly

The first thing you need to do when purchasing a home, before you continue your journey, is to get a copy of your credit reports. You need to get a copy of your credit reports from all three credit reporting agencies –  Trans Union, Equifax and Experian.

Credit reports are extremely important in gaining an approval for your new home.  The mortgage companies are more concerned about your recent buying and repayment history than what may have happened years ago. FHA policy requires a minimum credit of 530 to buy a home or refinance. But most lenders prefer a score of 620 or higher. Borrowers with credit score above 580 require a 3.5% down payment. The down payment funds can be the borrowers own funds or a gift from a family member and up to a 6% seller’s concession is allowed. If your credit score is below 580 new FHA changes require a 10% down payment. Negative data typically remain on your credit reports for seven years. 650 or higher was considered excellent by most mortgage lenders. 

If your credit report is not looking to do good, there are many things you can do to restore your score. So that way in six months to a year you can start applying again for a home mortgage and get your approval. 

1.  Check your credit reports for errors.  Again , that is plural so check all three of your credit reports for errors.  If there are mistakes on your credit reports, you will need to start an investigation with the company or the source of the derogatory information.  Contact them in writing and make sure you include all supporting documentation proving the information is in fact an error.

2.  Set up a timely repayment schedule.  If you have any accounts that you have been late in paying, you will need to begin paying all of them on time.  Paying your bills on time for a minimum of six months will go a long way in improving your credit rating.

3.  Collections.  Try to avoid having your accounts turned in to collections.  A collection is the most damaging of all credit issues.  So work out a re-payment plan before your account turns into a collection.  A credit improvement agency may be able to help you get your collections erased; but only if the creditor did not abide by all of the laws of the Fair Credit Reporting Act.   However, this is generally not the case because most creditors know the laws and how to follow them.  So don’t count on this as a quick fix .  Most collection accounts will stay on your credit report for a minimum of seven years.

4.  Keep a low balance on all of your revolving credit accounts.  Try to keep your balances below 50% of your limit.  The lesser the balance the better it looks to  potential creditors.

5.  Do some soul searching.  Try to determine what caused your credit status to get out of control in the first place.  Then do whatever you have to to amend your bad habits – if any.

6.  Get a secured credit card.  Secured credit cards can be very helpful in improving your credit.