7 Tips for Improving Your Credit

January 3, 2011 Leave a comment

Article From BuyAndSell.HouseLogic.com
By: G. M. Filisko
Published: February 25, 2010

Here’s how to clean up your credit so you get the least-expensive home loan possible.

Getting the loan that suits your situation at the best possible price and terms makes homebuying easier and more affordable. Here are seven ways to boost your credit score so you can do just that.

1. Know your credit score

Credit scores range from 300 to 850, and the higher, the better. They’re based on whether you’ve paid personal loans, car loans, credit cards, and other debt in full and on time in the past. You’ll need a score of at least 620 to qualify for a home loan and 740 to get the best interest rates and terms.

You’re entitled to a free copy of your credit report annually from each of the major credit-reporting bureaus, Equifax (http://www.equifax.com), Experian (http://www.experian.com), and TransUnion (http://www.transunion.com). Access all three versions of your credit report at www.annualcreditreport.com (http://www.annualcreditreport.com). Review them to ensure the information is accurate.

2. Correct errors on your credit report

If you find mistakes on your credit report, write a letter to the credit-reporting agency explaining why you believe there’s an error. Send documents that support your case, and ask that the error be corrected or removed. Also write to the company, or debt collector, that reported the incorrect information to dispute the information, and ask to be copied on any materials sent to credit-reporting agencies.

3. Pay every bill on time

You may be surprised at the damage even a few late payments will have on your credit score. The easiest way to make a big difference in your credit score without altering your spending habits is to diligently pay all your bills on time. You’ll also save money because you’ll keep the money you’ve been spending on late fees. Credit card or mortgage companies probably won’t report minor late payments, those less than 30 days overdue, but you’ll still have to pay late fees.

4. Use credit carefully

Another good way to boost your credit score is to pay your credit card bills in full every month. If you can’t do that, pay as much over your required minimum payment as possible to begin whittling away the debt. Stop using your credit cards to keep your balances from increasing, and transfer balances from high-interest credit cards to lower-interest cards.

5. Take care with the length of your credit

Credit rating agencies also consider the length of your credit history. If you’ve had a credit card for a long time and managed it responsibly, that works in your favor. However, opening several new credit cards at once can lower the average age of your accounts, which pushes down your score. Likewise, closing credit card accounts lowers your available credit, so keep credit cards open even if you’re not using them.

6. Don’t use all the credit you’re offered

Credit scores are also based on how much credit you use compared with how much you’re offered. Using $1,000 of available credit will give you a lower score than having $1,000 of available credit and using $100 of it. Occasionally opening new lines of credit can boost your available credit, which also affects your score positively.

7. Be patient

It can take time for your credit score to climb once you’ve begun working to improve it. Keep at it because the more distance you put between your spotty payment history and your current good payment record, the less damage you’ll do to your credit score.

Other web resources

How FICO scores are calculated (http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx)

Answers to frequently asked credit report questions (https://www.annualcreditreport.com/cra/helpfaq)

G.M. Filisko is an attorney and award-winning writer who keeps a close eye on her credit scores. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Filed under Buyers, First Time Homebuyers

4 Tips to Determine How Much Mortgage You Can Afford

November 17, 2010 Leave a comment

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: March 11, 2010

By knowing how much mortgage you can handle, you can ensure that home ownership will fit in your budget.

Homeownership should make you feel safe and secure, and that includes financially. Be sure you can afford your home by calculating how much of a mortgage you can safely fit into your budget. Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.

Think ahead to major life events and consider how those might influence your budget. Do you want to return to school for an advanced degree? Will a new child add day care to your monthly expenses? Does a relative plan to eventually live with you and contribute to the mortgage?

Still not sure how much you can afford? You can use the same formulas that most lenders use, or try another of these traditional methods for estimating the amount of mortgage you can afford.

1. The general rule of mortgage affordability

As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.
To understand how that rule applies to your particular financial situation, prepare a family budget and list all the costs of homeownership, like property taxes, insurance, maintenance, utilities, and community association fees, if applicable, as well as costs specific to your family, such as day care costs.

2. Factor in your downpayment

How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which costs hundreds each month. That leaves more money for your mortgage payment.
The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.

3. Consider your overall debt

Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.
Here’s how that works. If your gross annual income is $100,000, multiply by 28% and then divide by 12 months to arrive at a monthly mortgage payment of $2,333 or less. Next, check the total of all your monthly bills including your potential mortgage and make sure they don’t top 41%, or $3,416 in our example.

4. Use your rent as a mortgage guide

The tax benefits of homeownership generally allow you to afford a mortgage payment-including taxes and insurance-of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
Here’s an example. If you currently pay $1,500 per month in rent, you should be able to comfortably afford a $2,000 monthly mortgage payment after factoring in the tax benefits of homeownership.

However, if you’re struggling to keep up with your rent, consider what amount would be comfortable and use that for the calcuation instead.
Also consider whether or not you’ll itemize your deductions. If you take the standard deduction, you can’t also deduct mortgage interest payments. Talking to a tax adviser, or using a tax software program to do a “what if” tax return, can help you see your tax situation more clearly.

 

G.M. Filisko is an attorney and award-winning writer who’s owned her own home for more than 20 years. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Filed under First Time Homebuyers Tagged with , , , , , ,

Why buy a home?

November 11, 2010 Leave a comment

For the past year or two, there has been a lot of talk in the media about how renting a home is a better choice than buying one. This video illustrates why buying will trump renting long-term and even in the current market. Of course, you have to buy for the right reasons and plan for a longer time to build appreciable equity.

Filed under Buyers, First Time Homebuyers Tagged with , , ,

6 Tips for Buying a Home in a Short Sale

October 1, 2010 Leave a comment

Article From BuyAndSell.HouseLogic.com

By: G. M. Filisko
Published: March 19, 2010

By preparing for a real estate short sale, you can emerge with a great home at a favorable price.

When sellers need to sell their home for less than they owe on their mortgage, they’re shooting for a short sale. Short sale homes can sometimes be bargains, but only if you do your homework, stay patient, and remain unemotional during the sometimes lengthy and difficult short sale process.

Here are six tips for protecting yourself emotionally and financially when bidding on a short sale.

1. Get help from a short sale expert

A real estate agent experienced in short sales can identify which homes are being offered as short sales, help you determine a purchase price, and advise you on what to include in your offer to make the lender view it favorably. Ask agents how many buyers they’ve represented in short sales and, of those, how many successfully closed the transaction.

2. Build a team

Ask agents to recommend real estate attorneys knowledgeable in short sales and title experts. A title officer can do a title search to identify all the liens attached to a property you’re interested in. Because each lienholder must consent to a short sale, a property with multiple liens, like first and second mortgages, mechanic’s and condominium liens, or homeowners association liens, will be harder to purchase.

A title search may cost $250 to $300 up front, but it can help weed out less desirable properties requiring multiple approvals.

3. Know the home’s fair market value

By agreeing to a short sale, lenders are consenting to lose money on the loan they made to the sellers to purchase the home. Their goal is to keep those losses as low as possible. If your offer is dramatically less than the home’s fair market value, it may be rejected. Your agent can help you identify the price that’s good for you. The lender will determine whether approval is in its best interest.

4. Expect delays

There are two stages to a short sale. First, the sellers must consent to your purchase offer. Then they must submit it to their lender, along with documentation to convince the lender to agree to the sale.

The lender approval process can take weeks or months, even longer if the lender counteroffers. Expect bigger delays if several lienholders are involved; each can make a counteroffer or reject your offer.

5. Firm up your financing

Lenders will weigh your ability to close the transaction. If you’re preapproved for a mortgage, have a large downpayment, and can close at any time, they’ll consider your offer stronger than that of a buyer whose financing is less secure.

6. Avoid contingencies

If you must sell your current home before you can close on the short-sale property, or you need to close by a firm deadline, your offer may present too many moving parts for a lender to approve it.

Also, consider ordering an inspection so you’re fully informed about the home. Keep in mind that lenders are unlikely to approve an offer seeking repairs or credits for such work. You’ll probably have to purchase the home “as is,” which means in its present condition.

This article includes general information about tax laws and consequences, but isn’t intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

G.M. Filisko is an attorney and award-winning writer who luckily has avoided the need for a short sale on her properties. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Filed under Buyers, First Time Homebuyers Tagged with , ,

8 Tips for Finding Your New Home

September 23, 2010 Leave a comment

Article From BuyAndSell.HouseLogic.com

 By: G. M. Filisko
Published: February 10, 2010

A solid game plan can help you narrow your homebuying search to find the best home for you.

House hunting is just like any other shopping expedition. If you identify exactly what you want and do some research, you’ll zoom in on the home you want at the best price. These eight tips will guide you through a smart homebuying process.

1. Know thyself

Understand the type of home that suits your personality. Do you prefer a new or existing home? A ranch or a multistory home? If you’re leaning toward a fixer-upper, are you truly handy, or will you need to budget for contractors?

2. Research before you look

List the features you most want in a home and identify which are necessities and which are extras. Identify three to four neighborhoods you’d like to live in based on commute time, schools, recreation, crime, and price.

Then hop onto REALTOR.com (http://REALTOR.com) to get a feel for the homes available in your price range in your favorite neighborhoods. Use the results to prioritize your wants and needs so you can add in and weed out properties from the inventory you’d like to view.

3. Get your finances in order

Generally, lenders say you can afford a home priced two to three times your gross income. Create a budget so you know how much you’re comfortable spending each month on housing. Don’t wait until you’ve found a home and made an offer to investigate financing. Gather your financial records and meet with a lender to get a prequalification letter spelling out how much you’re eligible to borrow. The lender won’t necessarily consider the extra fees you’ll pay when you purchase or your plans to begin a family or purchase a new car, so shop in a price range you’re comfortable with. Also, presenting an offer contingent on financing will make your bid less attractive to sellers.

4. Set a moving timeline

Do you have blemishes on your credit that will take time to clear up? If you already own, have you sold your current home? If not, you’ll need to factor in the time needed to sell. If you rent, when is your lease up? Do you expect interest rates to jump anytime soon? All these factors will affect your buying, closing, and moving timelines.

5. Think long term

Your future plans may dictate the type of home you’ll buy. Are you looking for a starter house with plans to move up in a few years, or do you hope to stay in the home for five to 10 years? With a starter, you may need to adjust your expectations. If you plan to nest, be sure your priority list helps you identify a home you’ll still love years from now.

6. Work with a REALTOR

Ask people you trust for referrals to a real estate professional they trust. Interview agents to determine which have expertise in the neighborhoods and type of homes you’re interested in. Because homebuying triggers many emotions, consider whether an agent’s style meshes with your personality.

Also ask if the agent specializes in buyer representation. Unlike listing agents, whose first duty is to the seller, buyers’ reps work only for you even though they’re typically paid by the seller. Finally, check whether agents are REALTORS, which means they’re members of the NATIONAL ASSOCIATION OF REALTORS. NAR has been a champion of homeownership rights for more than a century.

7. Be realistic

It’s OK to be picky about the home and neighborhood you want, but don’t be close-minded, unrealistic, or blinded by minor imperfections. If you insist on living in a cul-de-sac, you may miss out on great homes on streets that are just as quiet and secluded.

On the flip side, don’t be so swayed by a “wow” feature that you forget about other issues-like noise levels-that can have a big impact on your quality of life. Use your priority list to evaluate each property, remembering there’s no such thing as the perfect home.

8. Limit the opinions you solicit

It’s natural to seek reassurance when making a big financial decision. But you know that saying about too many cooks in the kitchen. If you need a second opinion, select one or two people. But remain true to your list of wants and needs so the final decision is based on criteria you’ve identified as important.

G.M. Filisko is an attorney and award-winning writer who has found happiness in a brownstone in a historic Chicago neighborhood. A frequent contributor to many national publications including Bankrate.com, REALTOR Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Filed under Buyers, First Time Homebuyers Tagged with , , , ,

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