Got Student Loans?

portside.com

Got student loans? There's quite a bit of that going around. But that doesn't mean you can't purchase a home. Prior to 2008 first time home buyers occupied almost 40% of the market. Due to the recession, that percentage has gone down, into the low 30's.  Student loans is one of the reasons given for that large decrease. And student loans sure can eat up a chunk of change, no doubt about that.

  But having student loans doesn't necessarily mean you can't purchase a home.

 If your loans are in deferment, while that is not a bad thing, it doesn't help when you are qualifying for a loan. Your student loan payments have to be taken into account whether you are actively paying them or not. 

  So keep in mind that student loan payments are a factor in the debt ratio.  
  
  Purchasing a home, like any large financial decision requires some planning. If you are considering purchasing a home and you have student loan debt, now might not be a good time to buy a luxury car for instance. The best way to determine how much house you can buy is to visit your lender for a pre-home buying consultation. Your loan originator can go over your debt and income and come up with a plan so you may be able to purchase a home in the future. It might be that some consumer debt will need to be paid down in order to afford the home you wish to buy. Or perhaps you might need to re-amortize your student loans into a longer repayment period. 
  
  Or perhaps the best thing is throw as many resources at your student loans as possible for a few years to get them paid down. There is no one size fits all answer - but if you wish to own a home and begin building equity and net worth, it is certainly worth the time to investigate.

No Tire Kickers Please

Serious buyers-if you are a seller that is what it is all about. Today's Friday Funny underscores the fact that homes aren't put on the market for decorating ideas. Sellers want one thing: They want their home shown to folks who not only truly desire to buy what they are offering, but also have the means to do so. What constitutes a serious buyer?
The first sign of a serious buyer is one who has is pre-approved by their lender. They have made that call and gone over their financial situation as well as having done a credit check to determine their price range as well as their credit eligibility to buy. Looking at these two elements also assists the lender and agent determine which loan product suits that buyer's needs. Many sellers won't even show a home if the buyer hasn't taken this first important step.
Another important facet of a serious buyer is one who is willing to offer a purchase price that is in line with the neighborhood market. Sure, every one likes to think they are getting a good deal but particularly in a hot market like ours, a low ball offer won't be considered when multiple offers are flying in. As I used to ask the buyers I worked with back in my real estate agent days, "Do you want to write an offer or do you want to buy a house?" There is a big difference.

belmontrealestateblog.com

Buying in a Hot Market

  My most recent post mentioned that our area had achieved a rare feat-being included in the top 20 hottest markets in the U.S. If you are a seller that is great news! If your home is priced right you should experience a shorter market time and if you are really lucky you may even receive multiple offers. But what does this mean if you are a buyer? 

It means that you, Mr. or Ms Buyer need to have your financial ducks in a row. It means you don't make an offer until you have visited your lender to know your price range, the type of loan product you are going to use, as well as any credit issues that could slow down the process. It means that your down payment should already be in the bank or the source of your down payment should already be identified. It means if you need to ask your seller to assist you with closing costs, you have an idea of what those are.

I understand that the most exciting part of buying a house is looking at properties. However, if you haven't done your homework on the financial end, you may lose the opportunity to submit an offer on a home you love. In the type of market we are currently experiencing, sellers won't bother with buyers who can not produce a pre-approval letter.

Who should you call for a pre-approval? There are obviously many choices ranging from your local bank to large lending institutions that are national in scope, to online possibilities. Interest rates and closing costs vary from locality to locality. It is important that you have done your lender shopping prior to selecting the home you are going to buy. Here is a bit of truth-it is about more than the interest rate. Most lenders are going to be within about 1/8th of each other on interest rates. If you find one that has a large difference in rate from everyone else, there is something you don't know yet. Maybe it is a different loan program or perhaps there are fees known as discount points attached to the rate. Be sure you know all the facts. It is also important that you are able to speak personally with the same person throughout your transaction. A mortgage loan file is complex. It contains all the financial quirks and specifics of each borrower. It isn't something that someone who is unfamiliar with the file can just jump into and give you good information. As automated as some lending can be, person to person contact produces the best results.

Let's say you want to write an offer, but the price is at the top end of your affordability. You really want to know the payment before you commit. But you can't reach anyone at your online lender. In this market, waiting a day for a return call could cost you the house.

Mortgage Banks such as Hallmark specialize in mortgages and customer service. We aren't worried about your checking account, or your credit card or selling you services other than mortgages. Be prepared to buy in this hot market-while financing is the boring part of the process, it is also critical to your successful offer.

CLOSING COSTS? WHAT THE HECK?

ruggedgrp.com

What?! i need more money than just for my down payment? I hear that frequently. Yes. Yes you do. The money you need to purchase a home is for two different things: down payment and closing costs. Closing costs are the fees that you are required to pay the lender for services that are needed to close the transaction. What services you might ask. Here are the basic items that constitute closing costs:

Underwriting and processing - lender required

Appraisal and credit report - lender required

Tax transcript fees -lender required

Title Fees-which include a title exam, closing fee, and issuance of an owner's policy -required to be sure the title can be passed free and clear to you, as well as insure you in the case of a claim against the title in the future.

Recording Fees-required by the county of the property and the lender

There is also a subset of costs known as pre-paids. 12 months of home owner's insurance paid in full, interest on the loan to the end of the month, and a cushion for taxes and insurance known as your "escrow account" so that there will be enough money to pay these items a year from now when they come due.

These are the basic fees. Lending fees normally run $1900-$2000. The pre-paids depend totally on the cost of your taxes and home owner's insurance. Title fees are minimally going to run in the $500-$700 range depending on the size of the loan.

In addition there can be others such as termite inspection fees, well and septic test fees and if you choose to "buy down" your interest rate to a lower rate there is a cost.

The good news is you can often ask the seller to pay part or all of the closing costs. Up to 3% of the purchase price on conventional mortgages or up to 6% on government loans. In addition on VA loans there are some costs - $1000-$1200 that the veteran is not allowed to pay, so the seller normally does pay them or in some cases the lender does.

And there are two 100% loan types out there VA and USDA as well as the Indiana Housing down payment assistance which do not require a down payment, so monies saved can go for closing costs alone, or partial closing costs with seller concessions.

While it is possible to obtain mortgage financing without much out of pocket expense, I think it would not be entirely truthful to give someone the idea that they can get into a home with absolutely no out of pocket expense. Between inspections and earnest money I would plan for a minimum of $1000 out of pocket if you qualify for one of the no money down programs.

What Does Equity Mean to You?

blog.smarthomeequity.com

Today I want to talk a bit about home equity. For many new and would be buyers this term may be unfamiliar. Home equity can equal savings-savings you don't even think about. To keep it simple, equity in your home is the difference between what the house is worth and what you owe on it.

Let's say you buy a house for $100,000. You put 5% down ($5000). This would mean your equity is $5000 the day you close on the house...unless...your house appraises for $115,000 during the sale process. Then your equity is $$20,000; the difference between what the house is worth and what you owe.
Well that's nice, you say. No one wants to pay more than a house is worth, but what does that mean to me? Let's attack that question in a couple different ways. If you are a smart buyer you will purchase a home in a neighborhood in which there is demand. Perhaps it is because of the local schools, or maybe the physical characteristics of the lots in the neighborhood. Perhaps the location is close to shopping and amenities. It is financially advantageous to purchase one of the lower priced homes in an area that is growing in demand and value.

Since Americans only remain in a home on average 5-7 years. chances are that you will wish to sell that property sooner rather than later. Job transfers, growing families, more income, all contribute to the reasons people put their homes on the market. If you have bought into a neighborhood that has increased demand, your home should be worth more than what you paid for it, therefore, your value is up. You have been making payments all this time, so what you owe is down. Meaning you will have more money to put down on your next home or stash away in savings if you aren't buying again right away.

Perhaps you have no intention of moving, but your family has grown over the past seven or eight years and you need more space. Your home that you paid $150,000 for has increased in value to $175,000. Chances are there is some cash you could take out of the house between what you owe and what it is worth refinancing or using a home equity loan to add on or improve the home.

At Hallmark we have a loan that does just that, our Toolbox loan. Using the toolbox you can access the equity in your home up to 95% of the value for improvements. This product can even be used on a purchase to update a home you wish to buy assuming the home is worth enough to support the loan. Equity can be used for other things as well: to finance a portion of retirement if you sell once you retire, to access to send a child to college, or in some cases it might make sense to pay off debt.

So the next time someone is talking about equity in a home-what they a

Getting In Your Own Way

ninchanese.com

We all want a smooth mortgage process.If you ask around I am sure you will find multiple stories of mortgage processing horrors. There are some doozies out there. I know I hear them. However, there are things you can do to keep what began as a positive experience from turning into a nightmare. So take note-ignore these items at your peril.

1) Discuss loan options with your lender. Do your comparative shopping up front before you find a house. Decide where you want to apply for your loan. Jumping ship with the pressure of the clock running up to a closing date is not recommended. If you exceed the expiration on your contract date there is nothing but the seller's good will that will extend the contract. Think about it-maybe he has a better offer if yours falls through.

2) Don't forget to tell your lender about child support payments, loans not on your credit report, upcoming job changes or litigation that may be occurring. These can affect the outcome of the approval.

3) Give your lender the email address you check most frequently. If you don't use your email-say so. Most lenders communicate using email unless informed not to do so. Many documents are time sensitive and will be emailed unless instructed otherwise.

4) If you take a vacation while your loan is processing leave contact information. Failure to be able to reach you can cause delays.

5) Offer to supply documentation for your file prior to writing an offer. A loan file can't be submitted without all the appropriate financial documentation. We don't ask for documents because we like fat files-we ask for what we need to underwrite the file. You can question what we request-but generally there is no court of appeals. Please keep in mind that a lot of what is needed is federally mandated.

6) The Federal Government requires you to have three days to review your final fees prior to closing. This time table can't be moved up. Be aware that closings can't happen on the fly.

7) Do not change the terms of your contract-such as ask for closing costs after submission or decide to bring more money for the down payment to closing without telling your lender. We won't know if you don't tell us so the changes won't be made to the loan.

8) Tell your lender as soon as you are aware that there is an issue with your whole house inspection or if there isn't. Sometimes the lender, as a courtesy to you, will not order the appraisal until they hear that no deal killers came out of the inspection.

9) Don't anticipate that the appraiser will value your home for more than the sale price. He/she might, but the job is to support the sale price, not give you instant equity.

10) Be sure to get all requested documents while your loan is in process to your lender in a timely manner. Most underwriters and loan processors work on an assembly line type basis. If you miss your turn, you don't get moved to the front when you get your items in. You have to wait until your turn comes around again. So slow response only slows your loan down.
Typically, if we have what we need when we submit the loan file we can close your loan within 30 days. Items we don't control are the appraisal results, title concerns, and how fast you respond. If everyone works together we can deliver a smooth, on time closing.

Ready, Set Go!

deviantart.com

So. You have decided that you want to get out of that apartment and purchase a home this year. Congratulations, I support you 150%. (Full disclosure here, I make my living doing mortgages so your successful house hunt, means I get to pay my mortgage-but that aside, even given the fact I have a dog in the hunt, I really do believe whole heartedly that home ownership is the way to go.)

But it is important that if you are planning on purchasing a home this year that you understand the lay of the land. Locally, that is. In the Tippecanoe and contiguous county area there is currently a shortage of homes in certain price ranges. And the price range that most first time home buyer's are looking is a key one.

That being said, it is a very bad idea to go open housing on a Sunday without a plan. You may not intend to buy a house next Sunday, but if you find "The One", it probably won't be available by the time you are ready to write an offer. By ready I mean that you have been to your lender to get your financing in order. You might think you know what you can afford to pay for a mortgage payment, but do you really know if that is what a lender will allow? Do you have a down payment? What if you don't? How is your credit? Is it mortgage ready? What kind of loan are you talking about? All key questions to a purchase agreement.

Every year I have first time home buyers (and some second or third timers who don't realize how vastly different lending is than the first time they bought) present themselves for a quickie pre-approval letter, only to find that the assumptions they have made about what they can buy, or the payment required is vastly different than what they thought. Maybe the credit score is a tick too low for the loan that is being requested, or too low for mortgage lending at all. And before you can say, "Bob's your uncle," "The One' is gone, sold to a buyer who had their financing in place and ready to go. I know, the financing and number crunching isn't the fun part of the process, but it is a necessary part. So please...don't assume anything. Give me a call and get ready, set, to go. You may not find a house for six months, and that's okay. When you do I will have what we need in my file to give you a thumbs up to rock and roll on an offer so you are in the best negotiating position possible.

To Infinity And Beyond-My Apologies to Buzz Lightyear

  If you watch The Big 10 Channel lately (as well as the Super Bowl) you have seen commercials for an online lender that feature this little guy. The commercials are touting the speed of qualification for a mortgage of the space ship mortgage that is offered. It's fast-like a Titan Rocket. The showing of the ad during the Super Bowl has elicited a twitter war that even the CFPB (Consumer Financial Protection Bureau) got into - “When it comes to ‪#‎mortgages‬, take your time, ask questions and ‪#‎knowbeforeyouowe‬,” Maybe not such bad advice. While the Space Ship mortgage company is highly technologically evolved as far as automated systems go, obtaining a mortgage isn't quite the same transaction as purchasing a pair of shoes online. Shoes in the wrong size can be returned in most cases. Mortgages cannot.

  When I was a mortgage broker one of our investors was the aforementioned Space Ship Mortgage Company. I can attest to the fact that they are a highly automated company. The particular process that they are advertising actually allows them to view your assets, taxes and income (you check off that 's ok) through automation so that you aren't hassled with getting those items to a real live person upfront. Or asking that real live person to wing it. I presume you do have to provide hard copies at some point-that was the case when I had transactions with them. And that is where it can all break down. Garbage in, garbage out. While income, assets, and credit are a huge part of the story, it's the details that aren't apparent with just that information that hang a loan process up or kill it all together. Things like child support that add or subtract from income, the fact that someone quit their job a year ago and then was rehired six weeks later, thereby changing their hire date and tossing out the possibility of using any overtime to qualify since the use of overtime funds is a two year average from hire date. This speedo qualifying doesn't pick up nuances of credit. Your loan might not qualify due to credit issues, but maybe your issue can be easily solved. What you know is that you are declined-not what you need to do to fix it. For reasons such as those, I think having a person is good. Someone who knows the mortgage industry and how things work. Of course that is my job- I would prefer to keep my job so in the interests of full disclosure, I have a dog in the hunt. And I am all for automation. Hands down my company does a great automated gig. However, there is a human being on the front end.

  This is the most important financial transaction you will probably ever be involved in. Service from a person you can go see-isn't that worth a little bit of time?

HOW ARE CREDIT SCORES DETERMINED?

Here is a very instructive graphic from MGIC (the mortgage insurance company) illustrating what factors go into creating your credit score. This is a brilliant example of how you can increase yours because if you want a mortgage, you score has everything to do with mortgage eligibility, your interest rate, and the amount of mortgage insurance you will pay

Trendy?  2016?

pointit.com

Trends-cultural, political, social - - trending seems to be what everyone seems to be interested in. Catching the wave as it goes by, or better yet, being ahead of the wave and reaping the benefits.
Zombies, super heros, and dystopian societies are all trends that are manifesting themselves in entertainment, farm to table in fine dining; so are there trends to be found in housing and mortgages?

Of course there are. From those who are in the know I am learning that open concept is on the way out, as is granite for every flat surface. Mortgage lending can be trendy too - -so for the mortgage hipster, here is what is trending for 2016.

Interest Rates: The trend currently is down. While rates are not expected to hit the lows of a couple years ago,t he short term trend is rates hovering around or just below 4%. However, that trend is expected to reverse itself in 2016 and by the end of the year we could be close to 5%.

Credit Scoring: There are a couple of lenders on the West Coast that are experiencing with doing away with credit scoring in their loan approval process. The idea is to evaluate the history of payments and open debt, rather than assign a number to it. How this plays out with Fannie Mae and Freddie Mac and selling mortgages on the secondary market was not clear to me as loan sales are credit score driven-but it will be interesting to watch. In the meantime, for most of us, there seems to be a trend towards a relaxation of some credit rules which should help more buyers obtain mortgages.

Increasing Rents: There is a definite upswing in the cost of rent according to Fortune Magazine - - 8% for 2016. The reason being increased demand and decreased supply nationwide.

http://fortune.com/2015/10/07/rents-rise-housing/

And that leads us to this trend:

Millennials getting into the housing market. The biggest group will be the older millennials-those that are 35-40 years old, but we should also see large numbers of 25-30 somethings seriously considering purchasing their first home this year. In fact the millennial generation will be the largest percentage of home buyers this year.

Housing Prices: Nationwide should increase 3%

1.5 million new households are expected to be formed.

Sounds like a good year to jump on the trend and buy.

Closing Costs? What Are Those?

home-mortgage-center.com

The topic today is closing costs. If you are a first time home buyer, this may be the first time you have heard the phrase. Closing costs are the fees charged by the lender and other service providers in order to get your mortgage closed. "What the heck," you might say. Isn't the down payment enough? The down payment actually benefits you, the buyer. That goes towards the purchase price of the home. However, in order to close a home legally, there is lengthy list of things that have

to happen such as underwriting, appraisal, credit reporting, title searches, upfront mortgage insurance or funding fees etc. These all factor into closing costs which can add significantly to the acquisition cost of the house.

I like to divide closing costs into three parts:

1) Lender fees-the lender fees are for underwriting and processing-the fees the lender requires to actually process and approve your loan. These are the only fees that the lender actually controls. In most cases these fees run around $800-$900

2) Third party fees: These are fees charged by third parties but required by lending such as the appraisal, credit report, up front mortgage insurance or funding fees, title fees. and recording fees. It is hard to quantify these fees as some of them are dependent on the size of the mortgage.

3) The last classification of fees is what is known as pre-paid fees. These fees are to set escrow accounts for the payment of insurance and taxes, and one year of home owner's insurance. Again, depending on taxes and the cost of insurance the cost of this portion of closing fees can vary wildly.

However, the good news is that your lender should be able to give you a fairly solid estimate of how much these fees will run This can be done based upon a specific loan amount with out an actual property using estimates for taxes and insurance . Once a property is identified and the loan process begins a form called the Loan Estimate is issued with the total fees disclosed. If any fees change during the course of the processing of the loan the borrower is notified by the receipt of a new loan estimate. Typically once fees are disclosed, there are no significant changes unless the loan program has to change for one reason or another. The final dollar amount that the borrower brings to closing should pretty closely resemble the dollar amount shown on the Loan Estimate.

As a part of the purchase negotiation, the borrower can ask the seller to pay for some or all of the closing costs. In many cases the seller is willing to do so, however, that could potentially add to the purchase price of the home.

The other thing that buyers need to be aware of is that closing costs don't vary widely from lender to lender. With increased scrutiny from the Consumer Financial Protection Bureau, the costs for these services can't have wild swings, either on the borrower's behalf (such as the lender paying for their costs without disclosure) or undisclosed increases in costs.

For the first time home buyer, familiarity with these costs and a plan to cover them is a critical part of the pre-approval process. Do not hesitate to call your lender for answers to any questions you may have.

Pennywise, Dollar Foolish

angie'slist.com

Whoops! It happened again. A buyer decided to save some money by declining the opportunity to have a whole house inspection and got stuck with a wheezing, broken furnace. "The seller must have known," may be a true statement, but prove it and then try to get them to pay for repairs. That is an expensive endeavor often involving courts and lawyers. I don't recommend it.

What I do recommend is doing everything you can to know what you are buying. Buying a home is the most expensive financial investment that most people will make. If you don't have enough money to have the home properly inspected, you probably aren't financially ready to purchase a home.

The home is only five years old, you might say. What could possibly be wrong? Why bother with an inspection? Unless you can see through walls, are versed in how a breaker box should be wired, and are willing to crawl into the crawl space to verify that the property has no termites or standing water around the foundation, you need an inspection.

Wiring issues, termite damage, and water penetration concerns are the items that we see the most. Indiana is a state in which mold thrives. A window that is sealed improperly can leak moisture into the walls. Moisture can create mold, mold spreads. Toxic homes exist. I have known folks that have purchased homes that they can't live in due to mold. The remediation of mold is an expensive proposition-much more expensive than that inspection you chose to skip.

Another potential health hazard is radon. Radon is an odorless gas that is naturally occurring in Tippecanoe County. There are areas of the county where it is more prevalent than other areas. Radon has been linked to instances of lung cancer. Particularly with the more energy efficient windows and doors of new homes or a basement that will be used as living space it is probably a good idea to consider radon testing as well. Adding additional tests for mold, radon, well, and septic could increase the cost of your inspection by several hundred dollars. But...if it keeps you from buying a home that you have to make thousands of dollars in repairs it is well worth the expense.

Managing Expectations

cross15.edublogs.org

  As with most years, I anticipate that this year I will meet and work with a number of first time home buyers. So today I would like to discuss managing expectations. The subject of purchasing a home is often an emotional one. The idea of "home" being very personal. As with anything dealing with emotions, sometimes dreams and reality part company along the route, so it is important to understand what is possible and what is not.

   When dealing with mortgage financing, we are talking about a fairly black and white subject. When i first began originating mortgages in 2001, a well written letter could sometimes make the difference as to whether or not a loan would be approved. Underwriters still had discretion in making decisions. A person with a difficult story that anyone could relate to often was approved for a mortgage. Today, not so much. Mortgage decisions are based on specific quantifiable facts.

  What we look at is what is true and quantifiable. I.E., how much you actually make today, right now, your current debts today, right now. If I am giving a pre-approval I can't take into account what may happen in three months, I have to use the information that is available currently. So the raise, the bonus, the inheritance, the payoff of debt, are factors that could make a difference, but only once they are a reality.

  Often folks think they can buy more than what they actually can buy. The rent you pay for instance, isn't ratio tested to fit a formula as your house payment will be tested. So what you are paying in rent, may or may not be what you can pay in house payment. Online loan calculators don't always take into account the factors that affect interest rate, taxes, insurance or private mortgage insurance. So what you think your payment in a particular price range will be could be way off.

Many folks think that if they pay their utility bills on time that will ensure a good credit score. Since the utilities don't report to the credit bureaus unless the bill goes bad, you will need something else to establish credit. The days of awarding loans to folks with no credit scores are gone. (There does seem to be the beginning of a trend to not use scores in credit evaluation-rather to use payment history and absence of negative issues as a method of gauging credit-but I don't look for that to take over the industry in the near future.)

  Buyers often forget about deferred student loans when they are contemplating what they can afford. Sooner or later student loans have to be paid. Lenders have recognized this and now require those payments to be factored into debt ratio whether or not the loans are in repayment.

  The potential buyer has just begun a great new job. So then the question is-what was he doing prior to this job? School? Was the school work related to the job? Is the job with a temporary agency that supplies workers to various factories in the area. The rules are a bit different with that situation.

  Today's buyers were brought up in the information age. They are used to learning what they need to know on line. But the question is-are mortgages like any other product or commodity that can be purchased over the internet? I mean, you don't need a college degree to originate mortgages. It's not exactly rocket science. No, the mortgage business isn't rocket science. But it is highly regulated and subject to hundreds if not thousands of rules that change frequently.

  What I am here to tell you is, talk to a mortgage lender before you let your dreams get away from you. Find out what you can actually buy - then do your dreaming.

A Whirling Ball of Credit Confusion

dianekress.wordpress.com

I run into this every year. Confusion about credit; what it means, what is allowable, what it can do or can't do. Good credit is needed to buy a home these days. Not necessarily blemish free credit, but there needs to be evidence that you are in the habit of paying your bills on time. And by bills, we are talking about credit cards, vehicle payments, student loans, as well as personal loans. There is a direct connection between how a borrower pays their credit cards and installment loans with how they will pay their mortgage loan; past behavior being the best predictor of future behavior. It isn't too far a stretch to conclude that someone who never met a bill they liked to pay, isn't going to like that mortgage payment any better.

So, while mortgage lenders can be forgiving of negative credit, even past bankruptcies and foreclosures, there is a standard that most look for with regard to credit. Generally speaking the floor of that standard is a 640 credit score.

And when I say 640-I mean the middle credit score has to be a 640 or above. And by middle score, I mean the middle score of the lowest scoring borrower. Does that makes sense? Here's how it works:

If the borrower is purchasing the house with no co-borrower we will pull credit from three bureaus-Transunion, Experian, and Equifax. Whichever bureau posts the middle score, that is the one we use. IF we have two borrowers, a husband and wife, let's say- we pull credit on both and we use the lowest middle score. So if husband's Transunion is the middle score and it is a 675 and wife's Equifax is her middle score and it is 653, we will go with the wife's score as the score that determines eligibility for the loan. The only way we can use the husband's middle score as the determining score is if the wife is not on the mortgage.

Often I have young buyers who have a parent who is willing to be a co-borrower to offset low or no credit situations. We used to be able to do that. No more. There is no escaping a credit score that is ineligible for a mortgage to obtain a mortgage.

And why is it that my credit report is 20 points lower than what I just pulled off of Credit Karma? The answer is algorithms. Mortgage lending uses a different set of criteria for calculating credit-so that Experian "Kiss My Credit" ad with the blonde sticking her boots up on the desk? It doesn't necessarily work for mortgages.

The other thing about credit scoring is that lenders want to see accounts on credit reports. That is after all what creates credit scores, accounts that are working for you because you pay them on time and accounts that are working against you because you don't pay them on time...or at all. If there is a body of good credit reporting, it can offset to a degree, any bad credit that might be reporting. It's not a cure all. A credit card and a car payment that are paid on time for 6 months isn't going to help if the remaining 25 pages of the credit report are filled with negative credit. What determines credit are these factors:

1) How much you owe compared to how high your balances are. (keeping balances at 1/3 of the limit will obtain optimal credit on revolving accounts)

2) Timely payments

3) Number of open accounts

4) Diversity of type of account (revolving, installment, student loan etc)

5) Length of time accounts have been open

6) Existing negative credit-this includes late payments, collections, charge-offs, tax liens, and judgments

7) Credit inquiries. Anytime credit is pulled it is noted on the credit report for 120 days. One or two pulls don't make a huge amount of difference, but if someone has their credit pulled seven or eight times in a 60 day period scores can drop significantly. Car dealerships in particular hammer credit as they shoot out credit reports to many different finance companies. I have seen as many as nineteen or twenty credit pulls from one dealership for one transaction. It isn't advisable to shop for a car at the same time you shop for a mortgage unless you plan to finance the car through your bank or credit union who will be much gentler with the credit inquiries.

Your credit score will ultimately affect the interest rate. One of our programs has a 620 minimum score. It is a good FHA program-30 year fixed rate loan. But there is a significant interest rate difference between that program and and FHA loan with a borrower whose score is in the low 700's.

The sooner borrowers develop good credit habits the better if there is a mortgage loan in the future. Remember, the lender is taking the majority of the risk in the process. It's their money on the line and they are betting you will pay it back. Give them a reason to bet on you.

Rent or Buy?  Hmmmm? That's A Head Scratcher

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Which is better, renting or owning? In many cases this is a personal decision. What is your financial situation? Is your job stable? How is your debt situation? Do you have any savings? Does your credit need significant work? Depending on the answers to these questions renting until you have your financial house in order may be the better choice. One thing is true-long term, owning is financially a better decision than renting. It is a fact that the net worth of a home owner is by far higher than that of a renter. The difference is $200,000 to $5000 according to the Federal Reserve's Survey of Consumer Finances conducted in 2013.
http://economistsoutlook.blogs.realtor.org/…/net-worth-of-…/

These are of course national numbers but it is an indication that even given what we have gone through in housing crash, it is still a win-win to own.

The annual percentage of rent increase in 2015 was 8%. The increase in value of homes was 5%. Would you rather obtain a 5% increase that goes into your own pocket or pay 8% out of pocket? You can see why owning a home makes sense. And the fact is, no matter where you live (unless it is your mom's basement) you will be paying somebody's mortgage. Isn't it better that it be your own rather than your landlord's?

Is it no wonder that it is still the American dream to own a home?

Let Me Present:

    The subject of today's blog is not one that I wrote, rather it was authored by a friend of mine and posted on a blog she writes for. What is interesting is the history of home ownership over the last 6 decades and how lifestyles have changed and our expectations of living space has changed. One thing that is important to note (besides the fact that I am quoted) is that one huge difference is that today's buyer doesn't have to save as much money for a down payment and therefore can become a homeowner much earlier in the game. My family was also one of those that had cardboard over a hole on the floor board of the car.

http://www.wisebread.com/this-is-how-americans-spent-their-money-in-the-1950s

Where Did I Put That Down Payment Anyway?

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Near the top of the list of questions that I ask potential borrowers is this one: How much money have you saved for down payment? While there are a couple of options available for those who have no down payment saved, it is always a plus when someone has put money away for an eventual down payment whether they choose to use it or not. (It speaks to a pattern of savings. Savings means there is an ability to deal with unexpected emergencies and that is a very good thing. While technically someone with only $50 in the bank may be qualified for a mortgage loan, I am always uneasy advising someone to move forward with the idea of buying a home with so few assets.

Sometimes I think people have difficulty seeing where they have room in their budget to save money for a down payment. I can see how a young family with a couple of children has a hard time stashing the cash. And I think it is true that sometimes we have difficulty discerning the difference between what is necessary and what is nice. (Even at this late date I have issues with the same.)
So here are a couple of suggestions for those of you who don't quite know where you can economize to find your down payment savings:

Who has cable or satellite tv? Show of hands now...ah yes, quite a few I see.What's the average cost of television for that cable? $79 or $89 per month? Might I suggest this-purchase a Chromecast or Apple TV, an HD antennae-all one time hard costs. Subscribe to Netflix or another streaming service. Bingo! Savings of over $1000 per year. Put that money in your house savings account.

Next up do you buy lunch out every day? At an average cost of $10.00 per day or $50 per week you could save $2600 per year. Again-put that money in the house account. And how about going out for drinks? A very social thing to do, right? Why not consider having friends in for drinks-buy a bartender's guide and have your social ocassion at home. Why? If you spend an average of $66 per week on drinks out that is $3432 per year. Put that in your savings account. Let's see, how much have we saved in one year- $7032. That's more than enough for the down payment on a house.

This does require discipline and planning- and I am not saying NEVER go out for drinks. This is just to illustrate there are ways to save money that you may not have considered. While $15 per week may not seem like a lot, it adds up. So here's to my dancing drinks-get started on that savings account for that new house today!

ARRRRGHHH!  The Appraisal Came In Low

                                                              nathanbangs.com

  My little illustration is an accurate representation of the reaction when an appraisal comes in low. Nothing stops a transaction dead in its tracks as quickly as an appraisal that is lower than the sale price of a home. No buyer wants to buy a home that is overpriced, that is certain and no real estate professional wants to take a listing that they judge to be overpriced. A listing agent spends a fair amount of time going over neighborhood sales numbers trying to hit the sweet spot-i.e. the price at which the seller can achieve the best price for his/her home, but at the same time a price within the reasonable norms of the neighborhood. One can generalize that when a purchase contract is executed, two real estate professionals, a buyer, and a seller have come to an agreement as to what a property is worth. Afterall, it is sales that make a market. And then the appraiser comes along and blows the whole thing up. That's what it feels like, though that may not be the case at all.

  An appraisal is not a computation with a correct or incorrect answer. It is a snapshot of the market at a particular moment. Data that informs the market changes constantly. It is the job of the appraiser to sort through the data to find the best choices to use for comparable sales to establish value. Most of the time the appraisal comes in at the sale price or with a few thousand dollars to spare.

  But if it is the home that you are buying or selling that has a low appraisal all those other appraisals don't matter. What happens then?
From the lender's point of view, it is purely mathematical. If the loan is 5% down, the lender will loan 95% of the sale price or appraised value assuming the appraised value is lower than the sale price. So a home that everyone thought was worth $100,000 that appraised at $95000 will have a decreased loan amount. If the seller insists on obtaining a $100,000 sale price, then the buyer will have to increase the down payment amount by $5000 to cover the shortfall between the lowered mortgage and the sale price. The lender doesn't want to finance an over priced home any more than a buyer wants to buy one. And, since the lender is the party with the most skin in the game, it is a reasonable position.

  On the one hand, the reason homes are appraised is to ensure that the lender isn't loaning more money than the property is worth. The appraiser is the lender's eyes and ears. On the other hand, an appraisal also protects the consumer from unknowingly purchasing a property that is overpriced.

  As I mentioned, one solution is that the buyer makes up the difference in in value with an increased down payment. Generally, buyers don't much care to do that or have the ability to do that. So then it falls on the listing agent to work with the buyer's agent (assuming that is the wish of the buyer) to justify the sale price to the appraiser to see if the appraiser will accept a change to the appraisal. The listing agent might have a comparable property that they used to price the home that the appraiser didn't find. Or perhaps the appraiser made a mistake. It happens. Or the buyer may decide they want no part of the transaction and walk away at this point.

  Keep in mind the reason for the appraisal is to protect both the lender and the buyer. So no buyer should be coerced into paying more for a home than it is worth. And of course, the lender has the ultimate decision on whether or not they will accept an amended appraisal. So while an appraisal can be challenged, unless the appraiser made a mistake and acknowledges the mistake, chances are the value probably won't change.

  Typically, in these types of situations, if the shortfall is not excessive, the buyer and seller can negotiate to split the difference, or in many cases the seller will accept the lower price rather than go to the trouble of putting the home back on the market, losing an approved buyer, and taking the risk that the house will not appraise again.