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Preparing For Home Ownership
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Download the full article here
There are many great reasons for owning your own home including having your own place, the potential for equity appreciation, and being able to deduct the mortgage interest that may then make the cost of owning a home less then renting.
Buying a home is the largest purchase most people will ever make. Are you ready for home ownership: Examine your current situation and determination if (1) You have a steady, reliable source of income and a two year employment history; (2) You have a satisfactory credit history; (3) You are able to manage debt and can take on the monthly costs of home ownership even with future expenses such as a growing family and/or college; and (4) You have money saved for a down payment, closing costs, and reserves after closing or have access to these funds.
What to do if you want to buy a home: Track and record all of your monthly expenses by preparing a budget and accounting for all income and all monthly expenses for 3 months. Your budget worksheet should contain 4 columns: Monthly Budget Allocated, Monthly Actual, Difference, and Notes. Be sure to include every single item, keep a log of where every dollar goes, and include adding to your savings as a regular monthly expense. Put away the difference of the future mortgage payment and your current housing payment for a few months to determine your mortgage paying comfort level.
Obtain a tri-merge credit report that has not just your history, but also your credit scores. The credit reporting agencies are Transunion – www.transunion.com or 1-800-888-4213, Equifax – www.equifax.com or 1-800-685-1111, and Experian – www.experian.com or 1-888-397-3742. Review your tri-merge report carefully and correct any mistakes right away. If there are any collection accounts or liens they will need to be satisfied. Think of your credit as your asset, protect it, and improve it.
Along with an evaluation of your credit, stable income, assets, and demonstrated ability to manage debt, a lender typically looks at two ratios to determine how much you can afford to spend on your mortgage. The first is the housing expense ratio which is calculated by multiplying your total gross income by 28% and dividing the result by 12. This is the maximum monthly payment lenders typically allow, including principal, interest, taxes, insurance, and association dues. The second is your total debt ratio which is calculated by taking your total monthly obligations including your housing payment and dividing this by your total monthly gross income. Lenders generally want to see this ratio not exceeding 38%. If a borrower has strong compensating factors, sometimes there can be an allowance for an amount slightly higher than these ratios.
If what you can afford is less than the average single family home, look at townhouses, condos, affordable projects, and special organizations addressing affordable housing.
There are many skilled and knowledgeable loan officers that can assist you in many ways on becoming mortgage prepared. Work with one you trust that helps you to sort out your options and provides you with full disclosure to make an educated decision.
Jaimie Brown is a Senior Loan Consultant and Maui Team Trainer for Mortgage Express located at 1111 Bishop St., Ste. 511, Honolulu, HI 96813. Mortgage
Express provides free workshops on Maui for mortgage preparedness,
establishing and/or improving credit and providing money saving tips. She
can be reached at 808-242-6010 or via email: Jaimie@choicehawaii.com. |
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Best way to boost your credit score and repair it
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1. Pay on Time
It is an important factor to a potential lender whether or not you will pay your bills in full and on time.
2. Use a Variety of Credit
A variety of credit, such as mortgage loans and credit cards, can show that you are responsible for paying back both large and small financial promises.
3. Keep Accounts Open
The longer your credit history, the higher your credit rating tends to be. Opening a credit card account just to take advantage of a discount or a freebie then closing it right away works adversely. Better to keep it open.
4. Check all the factors that affect your personal credit score. Your report will show details like accounts with late payments, the various types of credit you’ve used, current balances and payment histories, public filings, and credit inquiries. You will also have the opportunity to correct negative or wrong information on your file. You have the right to a free credit report every year from the three credit reporting agencies listed below. Please note that your free credit report while providing all information in your history, does not provide a credit score. You could, however, pay for this at these bureaus or request a tri-merge with your Mortgage Express Loan Officers. For Mortgage Express to provide you a tri-merge, we first need your signed authorization and then your payment for the exact charge amount by the credit reporting company which is normally $15.25 per a single person or $20.83 for a couple.
5. 3 Credit Report Bureaus
A) Transunion – P.O. Box 4000, Chester, PA 19022, phone: 866-887-2673,
Website: www.transunion.com
B) Equifax – P.O. Box 740241, Atlanta, GA 30374-0241, phone: 800-685-1111,
Website: www.equifax.com
C) Experian – P.O. Box 2002, Allen, TX 75013, phone: 888-397-3742,
Website: www.experian.com
6. EXAMPLE ONLY – Higher credit scores tend to give you a better interest rate.
Differences NEEDS WORK and VERY GOOD
Fico Scores 520 720
Interest Rates 9% 5.5%
Payments $2522.56 $1703.37 = $710.50 Monthly Savings
Mortgage $300,000
Many Loans are fico driven, meaning the lower your score the higher your interest rate.
7. Setup Automatic Payments – On your Mortgage, Car Loan, and other regular installments. Setting up automatic payment systems could benefit you to ensure payments are made on time.
8. Prepare a:
Balance Sheet (Assets – liability = net worth) or
Income Statement or
Letter that states your net worth
Expenses vs. Income = Discretionary Income at the end of each month
9. Savings, CD, IRA, Retirement Accounts - It will reflect on you as a stronger borrower.
10. Secured Credit Cards, Secured Line of Credit – By securing a line of credit or credit card you would need to personally deposit your own funds into a secured account.
11. Credit Cards – Keep your credit balance limit at a minimum of 35% and lower.
Example: $1000 @ 35% = $350
12. Keep at least 2 – 3 Trade lines Open
Other helpful tips:
Piggybacks – Ask a parent or a family member or a close trusted friend with an excellent credit history if they are willing to help you out by adding your name on their account that way their good credit will reflect on yours as well.
Pay off all your smaller bills and high interest debts first then your larger ones.
Loan Inquiries – Don’t apply for too many loans or credit cards in a short period of time. It will affect your credit report and show as an inquiry which may make a lender suspect that there are more new accounts and additional debts.
Vehicle, Big Screen Television – Don’t make a purchase if you are seriously thinking of purchasing a home in the near future. In fact once you are in the loan process, you should not be making any large purchases unless it will not affect your qualifying. |
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Establishing your credit
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Establish credit if you don’t have any.
Open a free or low-cost checking or savings account and make regular deposits. Only write checks when you have money to for things. Apply for one or two credit cards, use them carefully and pay them off each month prior to having any interest charges. Use pay, use pay, use pay is the way to establish a history.
Keep your credit card balances low.
Don’t “max out” your credit cards – that can lower your credit score. Ask for limit increases instead of exceeding 35% of the limit in charges.
Pay your bills on time.
Credit scores emphasize your most recent payment record. Paying on time raises your credit score. If you’ve been late, start paying on time! A late payment of 30 days or more will show on your history for a long time so best to avoid that.
Think of your credit as a personal asset.
If you own a car or anything else of value, you protect it. Your credit is the same. It is one of your most important aspect toward homeownership and any large purchase.
Many people don’t understand credit; and, therefore don’t give it the attention it deserves. Don’t be intimidated – it only takes a small amount of time to learn what you need to know to make smart choices and protect yourself.
Your credit score is only one factor in the credit decision. Mortgage lenders also look at your credit history in your credit report, employment history, income, debt-to-income ratio, employment stability, savings, and the value of the home you want to buy.
How scores are determined
According to FICO, they weigh different aspects of credit differently:
35% - punctuality of past payments later than 30 days past due
30% - the amount of revolving debt, expressed as the ratio vs. total available revolving
credit (credit limits)
15% - length of credit history
10% - new credit of any sort are scored as more risky regardless of prompt payments
10% - types of credit used (installment, revolving, consumer finance) |
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Tax deduction and info
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Here are a couple good links and reads for you:
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The Power of Turning Points
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"From daily challenges to total disaster, you can use
any situation as an opportunity for transformation."
The Power of Turning Points
Any person with goals and ambitions is going to face some obstacles and setbacks. Frustration is a natural reaction when this happens. But frustration is just one possible response. In these challenging moments, some entrepreneurs find the resources within themselves to make major changes in their businesses and their lives. They use these turning points as the opportunity to ask, "If I could do this all over again, what would I do?" |
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3 Things To Know About Getting a Loan After Bankruptcy
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Most people have needed a little extra cash at some point in their lives. And just because you've declared bankruptcy doesn't mean you can't get approved for a loan or line of credit! However, your special circumstances mean that you may have to accept some conditions, such as:
HIGHER INTEREST RATE
Since your credit history has some black marks, lenders will view you as a riskier borrower. From their perspective, you're more likely to make late payments, miss payments or default on your loan. In an effort to balance out this risk, many lenders will charge a higher interest rate to borrowers who have declared bankruptcy in the past. Although you can expect to pay a rate that's one or two percent higher than average, watch out for excessively inflated rates. Comparison shop to see what kind of deals you get offered.
HIGHER FEES
As with the interest rate, the higher fees are your lender's way of balancing out the risk of lending to a borrower who has declared bankruptcy. You may have to pay extra charges--like an annual fee on a credit card--and you may have to pay higher "extra" fees. For example, a late payment charge on your loan might be higher than average. Again, be wary of any loan company that seems to be charging you exorbitant, unusually high fees.
OFFERING COLLATERAL
You may need to offer some type of collateral to be able to obtain credit or a loan after bankruptcy. If you're trying to get approved for a credit card, choose a "secured" card that uses a cash deposit from you as the collateral on the money you borrow. For other types of loans, you may need to offer your house, car or other valuable possession as collateral.
Here is a list of recommended Personal Loan Lenders online. It's important to use a reputable lender online to make sure your personal information is secure.
It's possible to get credit and/or a loan after declaring bankruptcy, though you may need to accept certain conditions or terms. In general, expect to pay a little bit more for any money you borrow, unless your loan is secured with some type of collateral. |
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What You Need to Know About Credit
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The Federal Trade Commission (FTC) is the nation’s consumer protection champion. The FTC works for the consumer to prevent fraud, deception and unfair business practices in the marketplace. The FTC provides the information consumers need to spot and avoid fraud and deception. Consumers can contact the FTC for free information on a wide range of issues.
I recomend you review this site to learn more about credit, how to manage it and how it applys to your home loans and more:
http://www.ftc.gov/bcp/conline/pubs/credit/gettingcredit.shtm |
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How Much House Can You Afford?
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Debt-to-Income RatiosTo determine your maximum mortgage amount, lenders use guidelines called debt-to-income ratios. This is simply the percentage of your monthly gross income (before taxes) that is used to pay your monthly debts. Because there are two calculations, there is a "front" ratio and a "back" ratio and they are generally written in the following format: 33/38.
The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable). The back ratio is the same thing, only it also includes your monthly consumer debt. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. Auto or life insurance is not considered a debt.
A common guideline for debt-to-income ratios is 33/38. A borrower's housing costs consume thirty-three percent of their monthly income. Add their monthly consumer debt to the housing costs, and it should take no more than thirty-eight percent of their monthly income to meet those obligations.
The guidelines are just guidelines and they are flexible. If you make a small down payment, the guidelines are more rigid. If you have marginal credit, the guidelines are more rigid. If you make a larger down payment or have sterling credit, the guidelines are less rigid. The guidelines also vary according to loan program. FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines do not have a front ratio at all, but the guideline for the back ratio is 41.
Example: If you make $5000 a month, with 33/38 qualifying ratio guidelines, your maximum monthly housing cost should be around $1650. Including your consumer debt, your monthly housing and credit expenditures should be around $1900 as a maximum. |
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The Truth About Option ARM Mortgage
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You've probably seen the advertisements for payment-option ARMs, or Option ARMs, or Pick-a-Payment mortgages. Generally, they tout the "start rate" of 1.00% or 1.25% and prey on consumer's desire for the lowest guaranteed rate. |
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Is now the right time to refinance? A few common questions
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When Alan Greenspan recently lowered the federal funds rate by a half a percentage point, that sound you heard was a collective sigh of relief coming from homeowners who bought in the last year.
Those homeowners who got stuck with a 8.5 to 8.75 percent interest rate on their loan may now be in a position to refinance those loans, and take advantage of rates that are, in many cases, 1.5 percent less than what they originally got a year ago.
(article continues below useful links)
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Mortgage Rates Remain Steady
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Here we are looking at mortgage rates for the first week of the year's second quarter and we might as well be looking at the rates for the beginning of the year. For fourteen week rates have moved up and down within a narrow range of 14 to 20 basis points, ending up, in the case of the 30-year fixed-rate mortgage (FRM) almost exactly where it began the year. |
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Introduction To 1031 Exchanges
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A 1031 Exchange (Tax-Deferred Exchange) Is One Of The Most Powerful Tax Deferral Strategies Remaining Available For Taxpayers. Anyone involved with advising or counseling real estate investors should know about tax-deferred exchanges, including Realtors, lawyers, accountants, financial planners, tax advisors, escrow and closing agents, and lenders. Taxpayers should never have to pay income taxes on the sale of property if they intend to reinvest the proceeds in similar or like-kind property. |
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