Your credit scoreis essentially the lifeblood of your borrowing ability. A low score will often be accompanied by high interest rates – that is, if your mortgage even gets approved at all – while a high score will be accompanied by low interest rates, saving you more long-term. But when it comes to real estate and mortgages, you might be wondering just what exactly constitutes as “good” credit, and whether or not your credit score is weighed differently when applying for a mortgage than when, say, applying for a car loan or when opening a new credit card. This post will take a look at that:
What is ‘Good’ Credit in Real Estate?
In the real estate world, most experts agree that if your FICO score is at least 740, you’ll be eligible for the best interest rates that are offered at the time. However, for every 20 points your credit score comes in below this 740 threshold, you’re likely to have add-ons to the interest rate – and you may not be eligible for certain programs. So say, for instance, that you have a 740 credit score and you lock in a 4.125 percent interest rate on your mortgage loan. If your score came in at 700, your rate might be 4.5 percent, at 660 it might be 5 percent and so on.
The experts also agree that too low a credit score will result in either very high interest rates or in complete denial of your mortgage application. Generally speaking, this low range where things can become somewhat sticky is between 600 and 620.
In saying all of this, it is worth noting that whether a mortgage application is approved or denied, as well as the interest rate, is largely dependent on the lender that you’re working with. For instance, some lenders may be more flexible with low credit scores than others.
What if I Have Poor Real Estate Credit?
If you’re in the 600-620 gray area and are either unsure of whether your mortgage application will be approved or if you can afford a higher interest rate if it is approved, your best option is to work to repair your credit to make you a more attractive consumer in the future. Here are some tips and suggestions in doing so:
Make sure you pay all of your bills on time. This is one of the largest weighed factors in determining your credit score.
Concentrate on paying down high-interest debt.
Check your credit report to ensure that it is error-free. (It’s estimated that the majority of credit reports have some sort of error on them.)
Ensure that your debts owed is at or less than 30 percent of your total credit allotment.
Only take out new lines of credit when necessary.
Real Estate – The Real History
Ever pondered the history of real estate and home ownership? Over the course of human history, there have been a lot of changes in our ideas about the places where we lay our heads. A few of the highlights of real estate history:
All humans were nomads until somewhere between 30,000 and 15,000 BCE. What changed us? Agriculture. By having plants and livestock grow in a predictable, stable place, we were able to settle down and set roots.
During the next phase, most of the people of the world were renters. A leader, whether a tribal leader, a pharaoh or the head of a feudal family, owned the land and everyone else who lived on it paid for the privilege with a share of their harvest. This would last, for most, until the end of the age of the monarchs.
The rise of the merchant class during the Renaissance brought with it the idea that people had a right to own the property they lived on.
In the Colonial Era in America, Spain, France and England all laid claim to portions of North America. Deeds known as Land Warrants that entitled settlers to land here were distributed by land offices. Many were rewarded for military service with a plot of land under an arrangement known as a Bounty Land Warrant.
There are historians who argue that when Thomas Jefferson wrote the line in the US Constitution about “the pursuit of happiness,” a key concern of that happiness was the right to own property.
Homeownership became the cornerstone of the “American Dream” in the 50 years after the Civil War. As people left farms to seek their fortunes in the city, people saw owning homes as an increasingly important part in securing prosperity.
Franklin D. Roosevelt was a strong proponent of homeownership and many programs to help more people buy homes came to be under his leadership. He is quoted as saying “A nation of homeowners is unconquerable.”
Today, roughly two-thirds of all Americans own their homes. The numbers are higher in out in the country where nearly three-quarters of people own the homes they live in and much lower in urban areas where property is more expensive.
The desire to own homes is not universal. In Germany, despite the high per capita income, only 40% of people are homeowners. It’s not always to your benefit to own, either. Many analysts, for instance, say that someone is better off renting in a place like San Francisco than they are owning a home.
In the US, homeownership is correlated with a lot of benefits for the community. In places where there are high proportions of owner-occupied houses, children do better in school, property is better maintained and crime rates are lower. Owning a home is even correlated with better levels of health.
When you buy a home, you become part of a rich movement with a long history. Begin the work to repair your credit to regain access to this part of your American birthright.
Homebuying Market – Out of Town Investment Firms
Sometimes you can wind up in a bidding war with another buyer when you are interested in a home; these days, that buyer is more likely to be an investment firm than it is another individual.
For a long time, the prices of homes were low. The real estate bubble from the early part of the decade had burst. And, a lot of owners and banks had houses to get off their hands, quick, in the wake of subprime loans that resulted in foreclosures and short sales.
But lately, home buyers are noticing a surprising trend. Prices on homes have started to climb again. And, houses in desirable areas are being snatched up as soon as they are listed. During the last real estate bubble, these sorts of phenomena were the result of small time home flippers hoping to make money on an investment. This time around, it’s large Wall Street investment firms. And, instead of buying to resell, they are holding onto the homes in a bid to become large scale landlords in hard hit markets that include Arizona, Florida and California.
How many homes? According to the New York Times, Los Angeles firm Colony Capital is spending $250 million a month on home-buying and already owns over 10,000 properties. New York firm Blackstone has purchased over 26,000 homes. They plan to earn by renting out the houses and possibly selling them at a later date if markets head back toward their highs.
While it can be difficult to compete with firms that have seemingly bottomless pockets, these tips can help you find a home that is right for you:
Have your preapproval in place. Being preapproved doesn’t just mean that you know your budget. It means that you have a head start and can move more quickly once you find a home that you like.
Get personal. Home sellers who are emotionally invested in their homes might feel more sympathetic to a family that will cherish the house than to an anonymous, far away firm. Send a note saying how much you love the home and how much you would love to live there.
Look at higher priced homes. Houses that are priced to move are most attractive to investors. You may be able to get an edge by looking at higher priced places that they might not consider. Once you’ve looked, you can try negotiating for a more reasonable price.
Consider making a competitive bid. A buyer may give you a chance at the house if you are willing to pay a bit more than your big league competitor. Just don’t get into a situation where the price of the house runs up higher than what it’s worth.
If you are having trouble finding a house because investment firms are buying the properties you want, don’t lose hope. In some markets, they are already beginning to scale back. And, by persisting and looking at many homes, you may get a jump on one and get yourself into a house you love.
FICO & Vantage Scores – Different Systems
Different Systems, Different Scores
Those three little digits that control so many of your financial opportunities. Your credit score can be pulled when you apply for a job, shop for insurance, during the home purchase process and in many other circumstances. But, it might surprise you to learn that there are actually a number of different agencies that create credit scores, and your scores will vary depending on which one is used. Some financial institutions even have their own internal credit scores that they use in place of independent ones.
Some of the most common credit scores used to determine your credit worthiness:
The FICO score is the one that people are most familiar with. It uses information from the three major credit bureaus to assign a three digit score that estimates credit risk. The score uses a number of weighted factors that include payment history, age of the accounts, ratio of available credit to debt, types of credit used and how recently you’ve searched for new credit. Your FICO score might vary depending on which credit bureau’s records are pulled to estimate your score.
This credit score was created through a joint effort between Experian, Equifax and TransUnion. The advantage of the VantageScore is that your score is the the same no matter which credit bureau’s information is pulled to calculate it. The score can range from 501 to 990 and also comes with a letter grade. It has not been adopted by many creditors and is currently only used for about 6% of credit score pulls.
This score was created by Experian to give consumers an easy to understand their credit health. It is not used by lenders; instead, it is intended as a consumer tool. The scoring range goes between 330 and 830, with a higher score indicating lower credit risk. Since this is not the score that creditors use when considering credit-worthiness, do not be surprised if your PLUS Score is different from the score that your bank says that you have.
TransUnion New Account Credit Score
This credit score is available for free from financial monitoring site Credit Karma. (As an aside: Credit Karma is a great resource for those undergoing credit repair. They allow you to check your credit score in real time and also to test what affect different actions will have using their credit score simulator.) The TransUnion New Account score is used by many lenders to decide how risky it is to extend credit to you. This score ranges from 300 to 850. It is based on information from TransUnion. It is made up of a number of factors that include the age of your accounts, our payment history and other factors.
Auto and Home Insurance Scores
These scores are used by the insurance industry to determine risk of a claim if you are insured by them. The results can affect the rates that you are extended when you shop for a policy. The scores range from 150 to 950. While the use credit scores for insurance is controversial, industry members defend the policy because of a correlation between credit scores and insurance risk.
Automate Your Finances – Never Miss a Bill Again
When you have done all of work necessary for credit repair, it just makes sense to keep your record clean and your score high. This is especially important if you are working toward a home purchase. But, if you have problems remembering to pay bills, this can undo all your effort. Luckily, a few minutes spent automating your finances can help ensure that you never miss a bill and painlessly build your nest egg at the same time.
Start with Direct Deposit
If you still receive a paper check from your job, see if they will switch you to direct deposit. Having your paychecks deposited directly into your account means that you spend less time at the bank, have your money sooner, and even have a wider choice of banks.
Set Up Automatic Bill Pay for All Regular Bills
Many checking accounts will allow you to set you automatic monthly payments using bill pay features in your account. If you do not have this option, you can also check whether the companies you pay each month have automatic deduction features on their web sites.
For credit cards, set up an automatic payment that will cover at least the minimum on your card. You will usually have the option to choose the day of the month that payments go through. This way, you can pick a day that comes after your payday. For instance, if you get paid on the 15th of the month, schedule your car insurance payment to hit a day or so after that each month.
Get Automatic Savings, Too
Many savings accounts and retirement accounts allow automatic contributions. These are taken directly out of your checking account, so, you never miss the cash. A regular automatic contribution to a savings account is a painless way to accrue funds for a down payment on a house. By automatically contributing to retirement accounts like IRAs, you establish future security. Plus, many discount brokerages will reduce or even eliminate fees if you sign up for automatic contributions to the account.
Give Your Finances Periodic Check-Ups
Once all of the money that goes into and comes out of your accounts has been automated, you will need to check balances far less often. However, it is still worth it to look at accounts periodically to see if adjustments need to be made. For instance, once your savings account balance reaches a certain level, you can transfer money to higher yield investments. As a rule of thumb, look at your checking account a few times a month and investment accounts a few times a year.
Do Not Automate If…
There are some situations where automating bill payments and contributions to savings can be counterproductive. Automatic investments may not work for people who have unpredictable income, since billing dates may not work with the days you get paid. You should also avoid automation if your checking account balance tends to be dangerously low.
Each person should evaluate their finances individually. For most people, in the end, worrying about one less aspect of your finances can reduce your stress levels and increase your financial well-being.
Many of us have a lot of different debts we are juggling: auto loans, student loans, a credit card or two. Have you ever wondered whether you would be better off consolidating these debts? It all depends on what you are trying to accomplish. There are both benefits and drawbacks to consolidating.
A few things to consider:
Is your goal to reduce your monthly financial obligations? Consolidating debt into one longer term loan can lower monthly payments. This can be a good option if you are simply unable to pay the amounts you currently owe per month and are in the credit repair process. But, there is often a trade off in the form of a longer term on the loan. You could be making payments for years longer than you would without consolidation. This can add thousands of dollars in excess payments.
Consolidating can be convenient. Many people like the ease of paying a single bill every month. But, there are other options for simplifying bill paying, such as automated withdrawals, that do not have the potential drawbacks of consolidation. If convenience is your only reason to consolidate, it would be better to reorganize the way that you pay your bills instead.
Consolidation can be smart if it locks in a lower interest rate. This will not always be possible if you have a low credit score. But, if you have a lot of debt on high-interest credit cards, you may be able to find an installment loan at a lower rate. Consider both the interest rate and the monthly payments to figure out whether you’d be getting a better deal.
In some circumstances, consolidation can improve your credit rating. For instance, if you have a number of credit cards that are close to their spending limits, paying them off with a consolidation loan can raise your score. This can be a boon if you are working towards a home purchase and are just a few points shy of loanable. But, a debt consolidation loan will require a hard check of your credit, which can slightly lower your score for a short time.
Look into DIY debt consolidation by transferring balances. Do you have a low-interest credit card with a high limit? It could be possible to consolidate some of your debt by using that card to pay off other, higher interest, loans.
Research well to avoid scams. Be sure you are dealing with a reputable company, particularly when you are looking for consolidation loans online. Your best bet is to check first with your local bank or credit union and then with social lending sites like LendingClub.com. Be wary of sites that advertise debt consolidation services but who actually offer debt management, a service where they merely pay your current installment or revolving loans for you, for a price.
The best thing for your credit is to lower your balances overall. Whether you opt to consolidate or not, the most important way to improve your credit is to lower your levels of debt. By paying down debts, you increase your unused credit, and gradually improve your credit worthiness, making your home owning dream closer to coming true.
Probably the greatest idea an individual could apply when trying to fix their credit rating is to learn the best ways to spending plan their money. Offer your self a concrete as well as set quantity you could manage to pay down your debt monthly and also you will have a far better idea about exactly how long it will certainly take you to settle all your debt.
When filing a dispute with a credit agency, supply duplicates of files that support your argument. Anything to assist the credit rating agency understand your side of the dispute will aid.
A vital suggestion to think about when functioning to fix your credit report is the truth that if you have inadequate credit report, you could not get approved for the housing that you prefer. This is necessary to consider considering that not only could you not be gotten approved for a property to purchase, you may not also certify to lease a home on your own.
Take into consideration acquiring a credit report counselor that can help you with your credit rating repair methods. Research the company prior to you join them to guarantee they are legit and also reputable. An excellent business will manage to obtain your bills level and assist you to obtain out of debt in a few years.
Do not evade the calls from collectors. You have thirty days to pay from the receipt of the collections discover just before it appears on your credit rating guide. On a regular basis, they will certainly permit you to separate the settlement into a couple of month-to-month settlements and also it will disappoint on your credit history guide.
Nothing will mend your credit besides time. If you have late settlements, defaults or even bankruptcy, your credit score will drop. There is no way to get rid of these once they have been stated. Only time and good behavior will eventually make them less as well as much less of a determining consider your credit score and the credit rating that you obtain.
If you have been distressed and really felt inhibited about your bad credit history, take these pointers and also utilize them to transform that. These ideas could help stop the freefall of your credit score and also begin making your score rise. Keep your concentrate on improving your credit score and also you’ll be simply fine.
Luckily, there are ways to improve it as well as you could acquire begun by having an appearance at these credit history maintenance and repair pointers.
Consider obtaining a credit therapist to assist you with your credit report maintenance and repair methods. Simply time as well as good actions will eventually make them less and also less of an establishing aspect in your credit score and the credit that you receive.
If you have been irritated as well as felt prevented regarding your bad credit report score, take these tips and utilize them to alter that. These pointers can help quit the freefall of your credit score and also start making your credit score surge.
Beat The Debt Collectors
Collection Methods … Win The Game!
Have you ever wondered why points occur in multiples? Many times it is of our very own doing, yet sometimes there appears to be some undetected force creating these issues. More later!
An analysis of your credit record will most likely give you a sign of exactly how particular bodies run. Indicators are that at least 75 % of the guides are wrong or deliberately incorrect.
On the subject of credit report records: It is your duty to see to it the access are appropriate. Credit reporting companies do not care if the information offered to them by debt collectors is accurate or otherwise! Realize the fact that credit rating reporting firms receive a bunch of cash from collection agencies, and so on. Memberships by companies, financial institutions and the like make their presence possible! It does not matter if the reports were purposely false, or constructed of spite, or perhaps entered with untrue dates, amounts or nonexistent companies.
While the above paragraph paints a miserable picture, the activities are indeed illegal, as well as also usually go unchallenged, since folks are unaware of the circumstance or are so daunted by the press reporters of info that they reluctantly approve them.
To refer back to the very first statement (points occur in multiples): Often times when a collector checks out a credit record he/she understands numerous accounts behind and also thinks that the person in question does not test reports or does not know concerning the records and assumes he/she could be quickly frightened and also persuade the debtor into fast pay. Additional details included in the credit history guide likewise includes where the individual is utilized and also if repayments have actually loomed to various other companies so the broker once more presumes the individual desires to pay the debts.
By the time the financial obligation reaches this point many fines, passion and also other costs have been included that the initial financial obligation is numerous times the initial amount. This profiteering is why agencies are so incessant in their intimidation. Bear in mind the representatives are experienced in this “career”.
It is important that you arm on your own with know-how: Get a record of your credit rating as well as figure out if the details is proper. You could quickly obtain the information you have to test the debt, stop bothering phone calls, require proof of financial obligation as well as overall stand up to unruly intimidation tactics. See here.
An essential extra action is to get command of your finances (never ever permit a collector command your own). There many publications and institutional entities that provide excellent guidance as well as help. Be mindful that several largely marketed financial obligation alleviation as well as advising services are worse compared to the collectors in integrity and sincerity.
One last word: Never Make Your Financial Choices From Concern!
On the topic of credit rating records: It is your duty to make certain the entries are proper. Credit history reporting companies do not care if the details offered to them by creditors is precise or not! Be aware of the fact that credit report reporting agencies obtain a lot of money from collectors, and so on. It is critical that you equip yourself with expertise: Get a report of your credit history as well as determine if the information is right.
Sinking in debt? – Pros and Cons behind debt management
People call into our office every day with the following questions:
“Nik. Should I file for bankruptcy? Should I look into consumer credit counseling? Should I consolidate my debt? What should I do?????? Aaaarrrgghhhhh”
Well, let’s start by defining each of the options available. There are pros and cons to each scenario and that is why dealing with a neutral company to assess your scenario is always your best bet. Key Credit repair is a “Credit Repair” company. This should not be mistaken-ed for a debt solutions company. When our clients ask us what to do with their debt we are able to assess their options better than a lawyer, debt settlement agent or credit counselor because we do not stand to gain financially from dealing with our clients debt problems. In fact, most of the debt solutions and advise we give is 100% free of charge. Anyway, here are the options…..
#1 Bankruptcy: There are two main types of bankruptcies for consumers. The first of which is a Chapter 7( we’re only talking about this options. I think chapter 13 is almost never an option)
Pros: A chapter 7 bankruptcy allows a consumer to wipe away all of their debt without paying back anyone. Also, in many cases you are able to keep your home, car and personal belongings. It can be an absolute savior in terms of getting out from under the harassing phone calls and possible law suits and wage garnishments from creditors. It’s a nice, quick “clean slate” if done correctly.
Cons: A bankruptcy filing is a 10 year mark on your credit report. bankruptcy doesn’t necessarily clear away all of your debt. Certain federally backed student loans cannot be included.
#2: Debt Consolidation: A consolidation should not be mistaken for a debt settlement or debt relief program. A “True” debt consolidation is taking out new loan and using the proceeds of that loan to pay off your existing debt.
Pros: These loans have provided major savings to consumers in the past. While credit car rates can hover around 30% Apr most installment loans used to consolidate debt are well below 10%. This can create considerable savings. Also, the payments on these loans are usually fully amortized. This means that your payment each month is not just going to interest but to principal as well. This allows you to see your balance drop each and every month.
Cons: These loans are almost completely obsolete. Unless you already have a great credit score (probably not because of your debt load) or belong to a credit union through your employer they are very hard to get (with the exception of student loan debt. Call me:).
#3: Consumer Credit Counseling: Most of the companies that offer consumer credit counseling are non-profit organizations (This doesn’t mean that the CEO’s aren’t making a million bucks and the people you are talking to aren’t commissioned employees. Not for profit is too loosely used these days). With these programs the consumer credit counseling agency will negotiate with each of your creditors for a lower interest rate. For a monthly fee (typically around $40) they will have you make a one time payment per month to them that will be distributed to all of your creditors until you are debt free.
Cons: While you are in a consumer credit counseling program you will not be able to use your cards. This is probably a good thing but for many consumers this can be a pretty big turn off. Also, each of the creditors that have been placed in a counseling program will place a mark on your credit report indicating that your debt is being managed by a third-party. Although this comment is credit score neutral most banks and lenders will not lend to you while in one of these program.
#4: Debt Settlement/Relief program: A debt settlement is a great bankruptcy alternative. In one of these programs a consultant will usually work with you to find out how much money you can budget each month into a dedicated savings account to be used to pay off your creditors. As you accumulate money in your savings account the debt settlement company will use those funds to pay off your debt at a reduced balance. This is a great tool to get out of debt at a pretty large discount. Many of the collection agencies that are purchasing the debts from your credit card companies are willing to settle for 20-50 cents on the dollar. Also, the Federal Trade Commission does not allow debt settlement companies to make fees until they have negotiated your settlement so that guarantees that you will not be charged anything up front.
Cons: Many time companies will not make it clear that they will not be making payments to your creditors until you have accumulated enough savings for a settlement. Also, if your debts are currently up to date you will end up seeing a significant credit score drop. These programs are designed primarily as a bankruptcy alternative.
#5: Do nothing: Yes, I’ve said it. “DO NOTHING”.
Pros: As time passes you will get closer and closer to your states statute of limitations for the collection of a debt. For example, here in Massachusetts you can refuse to pay on a debt 6 years after the date of last activity. Some states have statutes as low as 2 years. This is all pending that they haven’t sued you because judgement can be held over your head for 10 years.
Cons: Hhhhmmmm. Karma? Also, your credit report will still carry these debts for 7 years. Your refusal to pay does not necessarily remove the negative record because of their in ability to collect the debt from you.
Feel free to reach out to myself or any of my team members with your questions about how to approach debt. We can be reached at 617-265-7900. Also, please forward this to anyone that needs a “real” take on how to deal with debt.