The Impact of Your Credit

Everyone knows the importance of having a favorable rate on their mortgage. One of the most important factors in obtaining that favorable rate is your credit score. We will review what your credit score means, how it is determined, and how to improve it.

Image via Flickr by Dave Dugdale

 

What Your Credit Score Means

Your credit score is a standardized way for lenders to determine how risky it is to lend you money. The theory is that the better score someone has, the less risk they are. Because of this, the lower the risk, the lower your interest rate is. Therefore, in order to get the best rate on your mortgage, you will want to have the best credit score possible.

Most lenders use a standard “grading” system to categorize credit scores. While some lenders may develop their own systems for classification of scores, here is a general guide to score categorization:

Credit Score Grade

800 – 850………. A+

750 – 799………. A

700 – 749………. A-

650 – 699………. B

600 – 649………. C

550 – 599………. D

500 – 549………. E

300 – 499………. F

How Your Credit Score is Determined

Your credit score is formally known as a Fair Issac Corporation Score (commonly called the FICO® score). It ranges from 300 – 850 and is calculated according to the following risk factors:

Payment History (35% of score)

  • Payment information on several types of accounts

  • Public record and collection items

  • Details on late or missed payments such as:

    • How late they were

    • How much was owed

    • How recently they occurred

    • How many there are

Amounts Owed (30% of score)

  • Amount owed on all accounts

  • Amount owed on different types of accounts

  • Whether you are showing a balance on certain types of accounts

  • How much of the total credit line is being used

  • How much of installment loan accounts is still owed

Length of Credit History (15% of score)

  • How long your credit accounts have been established

  • How long specific credit accounts have been established

  • How long it has been since you used certain accounts

  • New Credit & Inquiries (10% of score)

How many new accounts you have

  • How long it has been since you opened a new account

  • How many recent requests for credit you have

Types of Credit (10% of score)

  • What kinds of credit accounts you have and how many of each

  • Total number of accounts you have

How You Can Improve Your Credit Score

If your credit score is keeping you from obtaining a better mortgage rate, there are a few things you can do to clean up your credit history.

First, you’ll want to obtain a complete copy of your credit report from the three leading reporting agencies:

 

Next, report your credit report line-by-line. Specifically, you’ll want to search for errors, omissions, duplications and “common name” errors.

  • If you come across any errors, write out exactly what should be corrected and why. You are able to add 100 words or less to reports on questioned items.

  • You can also find assistance through credit counselors, who are available through the various credit bureaus.

Federal law requires credit bureaus to contact all creditors on items where mistakes were made. According to the Fair Credit Reporting Act of 1971, if these firms fail to respond to you in writing within 30 days, they are obligated to remove the disputed items from your records.

12 Questions to Ask an Agent/Broker BEFORE You List

1 How is your real estate business capitalized?House Survey1

Marketing is expensive – training is expensive – running a business is expensive. You don’t want to hire an agent/broker/real estate company that is undercapitalized.

2 How many names are in your contact management system and how often are they contacted?

Yes, real estate data is important. Company files, personal files, and the MLS are full of important, useable, data. But what about people? You know, those who buy and sell real estate. Top agents compile a running database of those interested in buying or selling real estate.

3 What percentage of your business is listing… sales?

While most work with both, many agent/brokers today specialize in listing or selling.

4 What is your percentage of list to sell price?

Some associates, simply wanting to have a sign in someone’s yard, will take any listing at any price thus resulting in a low list to sell price. You’re looking for the professional who doesn’t have time to play games.

5 What is your & the area’s average days on the market?

While market conditions often dictate how long homes will sit on the market, you want to know that the agent you choose knows their stats.

6 What is your percentage of listings taken to sold and closed?

7 What percentage of your listings do you sell yourself?

It is great, as a listing agent, to sell your own listing. However, this happens less than you would expect – on average about 10% of the time. If someone promises much more, I would question it.

8 What percentage of your listings expire and why?

The number one reason listings expire is they are overpriced (discussed in #4 above). There are many other reasons: seller makes it difficult to show, unruly animals, unkempt property in poor condition and poor marketing.

9 What is the current market ‘absorption rate’ for my property?

10 What’s your ‘compelling point of difference’ and how will that convince me to do business with you and your company?

11 When will I see a strategic marketing plan for selling my property?

Simply put, the steps the associate and company will do to get your home sold.

12 What is the highest price we can expect and what will we need to do to our property to achieve it?

The goal is to get your home sold for the highest price, in the shortest amount of time, with the least inconvenience to you. The professional will be able to demonstrate how they arrived at the price point and what you’ll have to do to bring your property to the top of the market.

 

-Thank you to KCM Blog

 

Buying or Selling a Home? Where are the Values Headed?

Home Price Expectation

Today, many real estate conversations center around housing prices and where they may be headed. Some believe rapidly rising prices have created a new ‘housing bubble’. Others believe that the sudden rise in interest rates will impact purchasing power to such a degree that it will force prices downward. There is no lack of opinions and there is absolutely no consensus.

That is why we like the Home Price Expectation Survey. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then averages the projections of all 100+ experts into a single number.

The results of their latest survey

The latest survey was released last week. Here are the results:

  • Home values will appreciate by 6.7% in 2013.
  • The average annual appreciation will be 4.7% over the next 5 years
  • The cumulative appreciation will be 23.7% by 2017.
  • Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 13% by 2017.

Individual opinions make headlines. We believe the survey is a fairer depiction of future values.

 

-Thank you to the KCM Crew for this post

Credit Score Tips #2

As a follow up to the July 31st post about Credit Score Tips, we wanted to bring you five more valuable tips. Remember, it’s never too early to start thinking about ways you can repair and improve your credit score.

Credit Tip #6

Know how credit score is calculated. The breakdown is as follows:

1) Payment history: your track record. (35%)

2) Amounts that you owe: how much is too much? (30%)

3) Length of your credit history: how established is it? (15%)

4) New credit: are you taking on more debt? (10%)

5) Types of credit in use: is it a “healthy” mix? (10%)

Focus on what’s most important when it comes time to improve it. Understanding how your score is determined will help you understand what to focus on for maximum improvement.

Credit Tip #7

FICO scoring takes into account both the oldest credit account and the average age of all open accounts. Thus, length of credit history is very important and it makes sense to keep accounts that are in good standing open. If you’ve already closed some old accounts, some creditors will permit you to re-open them under the same account number (which is important.) Give the creditor a call and see if they will re-open a card that you have closed that is in good standing. It MUST be the same account number so that the history will be retained. It’s worth a shot!

Credit tip #8

Some “experts” teach that having no credit cards is the way to be a good financial steward. Since most will be unable to pay cash for their home, cars, etc., this is TERRIBLE advice. In order to MAXIMIZE your credit score and GENUINELY be a good steward of your finances, use credit to your advantage. Make purchases on credit cards that you would have paid cash for and then quickly pay them off online. Never carry a balance on your credit cards higher than 40% of the overall card limit/ (Ideally, never carry more than 20%.) If you want to be “debt free,” that is an EXCELLENT goal – but continue to utilize credit RESPONSIBLY to maximize your score and save money on things like home insurance, car insurance and of course on most loans. A good credit score means saving money. THAT is smart finance!

Credit Tip #9

Often, people assume that paying an old collection account will improve their credit score. While it can keep the account from being sold and re-reported (good), a paid credit collection account has ZERO impact on improving your score (bad) and will result in the date of last activity being updated (Worse) and the 7-year clock on how long the item is reported restarted all over again (REALLY BAD!). If at all possible, negotiate to have the item REMOVED from your credit history and get it in writing BEFORE making payment.

Credit Tip #10

Utilize an online credit monitoring service to keep you updated on what’s going on with your credit. A consumer score is different from a financial score, so the scores you see online will often be different than a lenders scores. Usually, they are similar and can at least give you a ballpark idea of where you are.

Credit Score Tips #1

Credit scores impact interest rates on mortgages, credit card rates, auto loans and even what we pay for our home and auto insurance annual premiums. Did you know some employers are using credit scores to evaluate prospective employees? So, it’s important to make sure your credit score is at its best before making the decision to purchase a new home.

Here are some simple credit tips to improve your credit profile.

Credit Tip #1

Want to stop receiving all those unwanted solicitations for credit card offers and maybe get a small boost in your scores as well? Call 1-888-5OPTOUT to remove yourself from the pre-approved credit card offers. You’ll be viewed as a lower credit risk and consequently your scores can go up five to 15 points.

Credit Tip #2

Have you heard that you should stay under 50 percent of your credit limit on your credit cards? FICO scoring calculates the score based on 20 percent increments (IE.0-20%,20-40%, etc.) Thus, if you are under 50 percent you are in the 40 to 60 percent bracket. The first major DECREASE in your score happens when you’re credit usage enters this bracket. ALWAYS stay under 40 percent of your total available credit limit. Whether you pay your bills on time has no impact on this factor.

Credit Tip #3

Did you know that the TYPES of credit you have make a difference in your scores? One of the ways to improve your credit scores is to make sure at least three accounts in good standing appear on your credit report. The ideal mix appears to be at least two credit cards (three to five is better) and a mortgage or installment loan such as an installment loan on a car.

Credit Tip #4

Did you know that 78 percent of Credit Bureau reports are missing at least 1 positive trade line (IE. a Credit Card) and a third are missing a positive mortgage payment? Verify that ALL of your credit is properly reported.

Credit Tip #5

Did you know that some credit card companies (IE. Kay Jewelers, Target, Macys, Capital 1, etc.) are notorious for failing to report your credit limit? The bureaus will then use your high balance as your limit. This could result in your score taking a huge hit because you are “Maxed out.” Verify all limits are properly reported! Independent analysis has shown that a loss of as much as 50 points in some instances occurs simply because of this issue. If you are currently using a card that fails to report limits, make sure to pay the balance down and only use the card occasionally for small purchases. Select cards that report limits and use those as your primary cards.

Another solution, though less recommended, is to make a larger purchase on the card and then pay it off once the “higher usage” is reported on the card. This way, your new “High usage” is reported as your credit limit and reduces the overall percentage of use of the limit on the culprit card. Ultimately, the better strategy is to simply pay down the card and limit the usage on the card to less than 30% of the previous “high usage.”

This can sound confusing but to give a simple example: If the previous highest usage on the card was $300 (even if the unreported limit was $5,000), your credit limit is in effect $300. Therefore, pay the card down and never exceed $90 (30 percent of $300).

13,918 Houses Sold Yesterday!

There are many naysayers declaring that the housing market is still challenged. Young adults are burdened with too much student debt. Interest rate increases are killing demand. Homeownership is no longer seen as part of the American Dream.

We just want to let these naysayers know three things: 13,918 houses sold yesterday, 13,918 will sell today and 13,918 will sell tomorrow. 13,918!

That is the average number of homes that sell each and every day in this country according to the National Association of Realtors’ (NAR) latest Existing Home Sales Report. NAR reported that sales had increased 15.2% over the year before. According to the report, annualized sales now stand at 5.08 million. Divide that number by 365 (days in a year) and we can see that, on average, almost 14,000 homes sell every day.

We realize that these numbers are below the record for homes sold in 2006. We also know that we may not see those numbers again for a long time (and that is probably a good thing). But to say that the current real estate market is challenged is totally inaccurate. We have about 14,000 pieces of evidence to prove that.
seen as part of the American Dream.

We just want to let these naysayers know three things: 13,918 houses sold yesterday, 13,918 will sell today and 13,918 will sell tomorrow. 13,918!

That is the average number of homes that sell each and every day in this country according to the National Association of Realtors’ (NAR) latest Existing Home Sales Report. NAR reported that sales had increased 15.2% over the year before. According to the report, annualized sales now stand at 5.08 million. Divide that number by 365 (days in a year) and we can see that, on average, almost 14,000 homes sell every day.

We realize that these numbers are below the record for homes sold in 2006. We also know that we may not see those numbers again for a long time (and that is probably a good thing). But to say that the current real estate market is challenged is totally inaccurate. We have about 14,000 pieces of evidence to prove that.

Thank you to the KCM crew for this blog.

Buying a Home? Don’t Let Fear Get in Your Way

financial-burden
The Founder of “Keeping Current Matters”, Steve Harney, occasionally asks to do a personal post on what he sees as important to our industry. Today is one of those days. Enjoy!

Last week, I was talking to a young couple I know that was about to close on their first home. They were riding the wild rollercoaster of current mortgage rate swings and were not happy about the mortgage process overall. Yet, when the conversation shifted to finally living in a home that they own, their disposition changed dramatically.

A smile came across their faces as they talked about decorating their son’s bedroom and how much he will enjoy the backyard. They talked about inviting friends over for dinner and their family over for the holidays. The more they talked, the more excited they became.

I asked them if many of their friends were also buying. I was shocked to find out that they weren’t. Why not? Their friends believed that homeownership was financially unobtainable right now. Many wanted to own but didn’t think they could afford the monthly mortgage payment. They decided to rent instead.

I said that, with interest rates and prices where they are today, owning a home might not be any more expensive than renting one. The couple agreed but said their friends were afraid; afraid they might not qualify for a loan, afraid to handle negotiations with a seller, afraid of the home buying process itself.

Wow!

People should not make decisions out of fear! I’m not saying that every young person should own a home. I am saying that anyone that is qualified and wants to buy should not be afraid of the process. I realize the process may seem daunting but realize over 10,000 homes sell every day in this country. Sit down and discuss your goals with professionals from both the real estate and mortgage industries. Get the facts. Make an informed decision. Don’t let the fear of the unknown prevent you from living the life of your dreams.

Thank you to the KCM Crew & Steve Harney for this post.

Institutional Investors:Their Impact on the Housing Market

Houses in shopping cart

The real estate conversation in many corners has been dominated by the potential impact that ‘institutional investors’ may have had and will continue to have on the housing market. Institutional investor is a term used to define organizations which pool large sums of money and invest those sums in securities, real property and other investment assets.

These large institutional investors are buying residential properties throughout the United States. The New York Times recently reported that the Blackstone Group, the largest investor in single-family rentals in America, has recently bought 26,000 homes and that Colony Capital owns 10,000. There are other such firms also adding to their portfolio. In a recent Seeking Alpha article, Chris Martenson revealed that JPMorgan has initiated a fund to buy up to 5,000 homes and that Morgan Stanley has raised money to buy up to 10,000 homes.

Some are concerned that renters and absentee landlords may not properly maintain these properties. Others wonder what would happen to prices if these large scale buyers became large scale sellers.

What Could Be the Impact?

We must first realize that the number of homes being purchased by this type of investor, even if 100,000, pales in comparison to the 5 million homes projected to sell this year. Also, these investors are concentrating in the hardest hit areas where they can find the best investment opportunities. In an article last week, DSNews revealed:

“Institutional purchase activity has been especially notable in seven metros areas—Atlanta, Los Angeles, Las Vegas, Miami, New York, Phoenix, and Tampa.”

The article explained that the impact of this type of purchase would be stronger in these particular markets.

“In these markets, the impact of their exit will be more strongly felt.”

What About Going Forward?

With both prices and interest rates rising, many of these institutional investors may already be winding down their purchases. Bloomberg, in a recent article, quoted Hedge fund manager Bruce Rose, chief executive officer of Carrington Holding Co. LLC a fund that has managed over 25,000 rental homes:

“We just don’t see the returns there that are adequate to incentivize us to continue to invest. There’s a lot of — bluntly — stupid money that jumped into the trade without any infrastructure, without any real capabilities and a kind of build-it-as-you-go mentality that we think is somewhat irresponsible.”

The article also revealed that Och-Ziff Capital Management Group LLC , a $31 billion hedge fund managed by Daniel Och, has stopped putting money into rental homes.

The reason these firms are beginning to back away is that they are not seeing the returns they had hoped for. Bloomberg reports that Colony American Homes Inc. has found tenants for only 51% of the 9,931 homes it bought. American Residential Properties Inc. and Silver Bay Realty Trust Inc., two additional investors, both reported losses in the quarter ending March 31.

CONCLUSION

The impact of the institutional investor has yet to be fully determined. However, based on their limited purchasers as compared to all sales and their current uneasiness to continue with these purchases, the overall effect will probably be limited to a few markets that originally saw the greatest interest from these investors.

Selling a House? 5 Reasons You Should Do It Now

five fingers

 

Many are talking about why now is a great time to buy a home. Today, we want to look at why it might also be an opportune time to sell your house. Here are the Top 5 Reasons we believe now may be a perfect time to put your house on the market.

1.) Demand Is High

Homes are selling at the fastest pace since November 2009 when the market spiked in response to the home buyer tax credit. The most recent Existing Home Sales Report by the National Association of Realtors (NAR) showed that monthly sales increased 9.7% over the same month last year. Total sales have been above year-ago levels for 22 consecutive months. There are buyers out there right now (buyer traffic is 31 percent stronger than a year ago) and they are serious about purchasing.

2.) Supply Is Beginning to Increase

Total housing inventory last month rose 11.9% to 2.16 million homes for sale. This represents a 5.2-month supply at the current sales pace, compared with 4.3 months in January. Many expect inventory to continue to rise as more sellers escape the shackles of negative equity. Selling now while demand is high and before supply increases may garner you your best price.

3.) New Construction Is Coming Back

Over the last several years, most homeowners selling their home did not have to compete with a new construction project around the block. As the market is recovering, more and more builders are jumping back in. These ‘shiny’ new homes will again become competition as they are an attractive alternative for many purchasers.

4.) Interest Rates Are Rising

According to Freddie Mac’s Primary Mortgage Market Survey, interest rates for a 30-year mortgage have shot up to 3.98% which represents a jump of more than ½ point since the beginning of the year. Even those trying to be the voice of reason on this issue are projecting higher rates. For example, Polyana da Costa, senior mortgage analyst at Bankrate.com said:

“Rates are unlikely to keep going up so quickly and should remain below 5%.”

Whether you are moving up or moving down, your housing expense will be more a year from now if a mortgage is necessary to purchase your next home.

5.) It’s Time to Move On with Your Life

Look at the reason you are thinking about selling and decide whether it is worth waiting. Is the possibility of a few extra dollars more important than being with family; more important than your health; more important than having the freedom to go on with your life the way you think you should?

You already know the answers to the questions we just asked. You have the power to take back control of your situation by putting the house on the market today. The time may have come for you and your family to move on and start living the life you desire. That is what is truly important.