Open a secured credit card to begin restoring your credit. It may seem alarming to have a credit card account open if you have bad credit, but it is essential for boosting your FICO score. Utilize the card correctly and it will improve your score, here’s how to use it included in your credit rebuilding program.
Getting a traditional home loan can be difficult, if not impossible, with imperfect credit. If your income is a factor you may qualify for a FHA loan, which has lower standards and makes the federal government your lender in a sense. You might be able to get an FHA loan even if you cannot afford closing costs or down payments.
If your credit is such that you cannot get a new card to help repair it, apply for a secured one. Secured credit card applications have a high rate of approval because you must fund a security deposit against your credit limit. Limited spending and regular payments can turn a new credit account into a valuable credit repair tool.
Pay down any credit cards with a balance in excess of 50%, preferably getting them down to 30%. If any of your balances climb past half of your available credit limit, pay them down or spread the debt around other accounts, otherwise, your credit rating gets tarnished.
If your credit is top-notch, getting a mortgage is a simple matter. When your mortgage is paid in full, you will be rewarded with increased scores on your credit file. Owning a home is a great thing to have to help with your credit score. The house secures your finances and adds to your assets. Having a good credit score is important if you need to take out a loan.
No credit repair company can remove factual information, no matter how damaging, from your credit report. You have to wait for seven years before negative data can come off your record. You should know that mistakes and anything incorrect can be removed from your credit report.
One of the first steps of improving your credit score is ensuring that your bills are always paid. However, it’s not enough to just pay your bills; you need to make your payments on time and in full. Once you have started to pay towards your past-due accounts, you credit score will gradually improve.
When trying to repair your credit, research any credit counselors you consider using very thoroughly. Many counselors are honest and helpful, but others may be less interested in actually helping you. You’ll find that other ones are just scams. A savvy consumer will always do his or her research on any credit counseling service to ensure that the agency is legitimate.
Though it is an unsettling prospect, consider asking your credit card provider to reduce the amount of credit extended to you. You will not be able to spend too much and they will see that you are responsible.
Before you agree to enter a debt settlement, learn about what happens to your credit as a result of it. Do some heavy researching before starting an agreement with any creditor; there are other options that may not damage your credit score as heavily. The creditor does not care what happens to your credit score, as long as they get their money.
It will be easier to increase your credit rating if you only have one open credit card account. Call your credit card company and try to work out a repayment plan, or transfer the balances of multiple cards to one lower interest card. This can help you avoid paying down smaller balances and focus on paying one card off.
When you get your monthly credit card bill, check it over to see if there are any mistakes. If there are late fees, you have to make sure that you take care of them immediately with the company so that they don’t send that information to the credit bureaus.
If a creditor agrees to give you a payment plan, get that payment plan in writing. This is a great way to have documentation of the plan if the creditor changes their mind or the company ownership gets changed. Once you make the final payment, get a statement that verifies that the debt has been satisfied and send it to the various credit reporting agencies.
Now you know your credit report does not have to be a nightmare for you. When you face your fears about your credit, you can get started on fixing it. By following the advice in this article, you can make very positive changes to your credit.
]]>Planning to move out of the area in a couple of years? If so you may be better off not buying a home now. The cost of selling a house generally falls in a range of 7% 8% of the sale price which may be more than the appreciation of the house.
Check out this Rent vs. Buying web site to compare the advantages of each. Thinking about changing jobs? It might be best to wait until after your purchase. Look at your work history. 
Is it sporadic or did you just start a new job? Lenders like to see someone with a steady work history and with job changes in the same line of work. Lenders will require your work history along with past tax returns.
Look at your credit report before you go to a lender. It is not uncommon to find problems with reports, especially if you have a common last name. If you find a problem, start with the reporting agency to clear it up. It is common to have a late payment at some time or another. These problems can usually be taken care of with a letter of explanation from you to the lender.
FICO Scores: What They are and Why They are Important
To get copies of your credit report, start at:
Experian
My FICO Score
Free Annual Credit Report
Banks/Savings and Loans vs. Loan Brokers
- Loan officers at a bank work for the bank.
- Loan brokers work for you and have a fiduciary relationship.
- Most banks cooperate with loan brokers.
- You can go to a broker and obtain a loan through a bank.
- Most banks will offer you a menu of programs while a loan broker will offer a
- menu of lenders. Banks and loan brokers are under different government controls.
- A complaint regarding a bank would go to the State Department of Banking.
- A complaint regarding a loan broker would go to the State Department of Real Estate.
- Contact someone from each source to see what special programs they have to offer.
Loan Pre-Approval
- Getting pre-approved for a loan is a necessary step when buying real estate.
- If you are pre-approved first you will save considerable time looking for a property.
- You will know how much a lender will commit so you won’t waste time looking at property you can’t qualify for.
- You will have a better chance of having an offer accepted if it is accompanied with a pre-approval letter.
- The best agents won’t work with buyers until they are pre-approved.
A lender will let you know your maximum loan amount after providing them:
- Income from all sources.
- Funds available for a down payment and closing costs.
- Your monthly obligations (auto loans, credit card payments, alimony, child support)
- Price range of homes where you want to locate.
Selecting a Lender
You should pick a lender based on experience, customer service and recommendations. Work with a lender who is experienced in the business, knows the availability of the different type loans and how to handle the demands of processing. Don’t make the decision based solely on which lender is offering the lowest rates. If a company is offering a mortgage package that is well below market rates, you should beware. All mortgage companies generally choose from the same pool of investors. A company offering abnormally low rates might make up the difference by increasing closing costs or tacking on additional settlement fees.
Determine how long you expect to live in the new home. This decision will not only affect the houses you look at, but also will determine the type and term of loan you choose. Get everything in writing and a copy of everything you sign.
Ask your lender at application what fees typically are included in the finance charge computation, and what fees may be charged separately at closing.
How Much Can I Qualify For?
Most lenders require your housing payments not to exceed 25-33% (depending on your down payment) of your gross monthly income called “housing expense ratio”. Your total debt payments should not exceed 33-38%, figured on a monthly basis. This figure is called your “total debt ratio”. Use the mortgage calculators to find out how much you can afford.
How Much Do I Need?
Besides setting aside money for a down payment, you will need money for closing costs. Those costs can range from $3,000 to $10,000, depending on the type of loan, the loan fees and the community the property is located in. The smartest and most time efficient thing to do is get pre-approved up front, before you start looking for a home. Next, find a Boca Raton real estate agent familiar with the area you want to live and you are comfortable with. Educate your self about local property values and the current market trend.
Most lenders require at least 10% of the purchase price, though new programs are available for 3%-5% down. 100% financing can be found, but you credit must be excellent and PMI insurance will be required.
Loan Origination Fee
A lender’s fee for establishing a new loan. Government regulations allow only 1% origination fee on FHA or VA loans. Conventional loan fees can vary from -1 to 3+ points, plus other costs. A point is 1% of the loan.
Appraisal Fee
Fee paid to obtain an estimate of market value upon which the lender will base the loan amount. The cost is about $300-$500. Non refundable.
Credit Report
An evaluation of the buyer’s credit habits made by a credit bureau for the lender. The cost is $50-$60. Non refundable.
Tax Service Fee
A charge of approximately $75 is made by a tax service company to verify to the lender that the taxes have actually been paid when due or are due to be paid by borrower or mortgage company if impounding.
Assumption Fee
Fee of approximately $250 up to 1% of the loan balance is charged by the existing lender for the privilege of assuming the existing loan.
Pest Inspection Fee
Fees of $75 – $175 is charged by termite companies for inspecting property for damage done by wood destroying organisms and dry rot. It is customary for the seller to pay for Section 1 and the buyer for Section 2 work.
Other Inspection Fees
Other inspections the buyer may choose to have done are: property inspections that usually cover foundation, electrical, plumbing and overall construction at a cost of $300-$400. Roof inspections cost $75-$125. Geological reports cover subject’s site in relation to fault and slide zones, costing about $100. Septic $200-$400. Radon $50-$100. Asbestos $75-$125.
Title Insurance
This is an extended policy with more specific coverage than the standard policy. It covers unrecorded liens, is based on loan amount only and is required by almost all lenders. The cost is obtained from a rate chart and is based on the loan amount.
Miscellaneous Costs & Fees
An estimate of $150 should be adequate to cover minor items as notary, recording documents, endorsements, etc. as well as allowing for variations from these other estimates.
Hazard Insurance Reserve
Two month’s premium is collected for the impound account if required. The buyer will need to either provide or pay for coverage for the 1st year.
Prepaid Interest
Interest must be paid from COE (close of escrow) to 30 days prior to the first regular mortgage payment. An estimate of one months interest should suffice.
Mortgage Insurance
Mortgage Insurance is required on all conventional loans greater than 80%. The cost may range from 1/2% to 1% per year and 14 months premium is collected in advance. This is coverage for the lender in case of default.
Tax Impounds
If the new loan is going to have an impound account, the lender will require from 2-10 months taxes to be deposited, depending on the time of year. Note: if taxes are prorated, buyer’s total charge for taxes should equal about six month’s taxes.
Escrow Fee
These fees range from $750-$2500, depending on the sales price. In some counties its customarily paid by the seller, in other counties the buyer pays, while in others it may be customarily split. Remember though, everything is negotiable.
Negotiating Fees
The above fees are typical costs when buying real estate in Florida counties. Most of the fees are considered buyer’s non-recurring closing costs. Some of the fees are fixed while others are negotiable. Your real estate agent can negotiate with the sellers to pay some or most of these costs, saving you thousands of dollars in closing costs. Ask your real estate agent and loan agent to provide estimated closing costs of buying a home before looking at homes.
FICO scores (credit score) are what the vast majority of American mortgage lenders use to evaluate home loan applicants’ creditworthiness. The scores are based on a number of factors that analyze the electronic credit files maintained on virtually all adults in the U.S.
The scores range from the 300s to around 850, with higher scores indicating lower risk. Many lenders reserve their most favorable quotes of rates and fees for applicants in the upper FICO score ranges, 700 and above. Mortgage applicants in the low 600s and below get progressively higher rate quotes and are charged higher loan fees.
Your FICO score only looks at information in your credit report. However, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your score.
Your Score Takes into Account:
- Payment information on many types of accounts, including credit cards, retail accounts, car and mortgage loans.
- Public record and collection items such as bankruptcies, foreclosures, suits, wage attachments, liens and judgments.
- Details on late or missed payments (“delinquencies”) specifically, how late they were, how much was owed, how recently they occurred and how many there are.
- How many accounts show no late payments.
- Length of Credit History
How Scores are Established:
Approximately 15% of your score is based on your credit history. Generally a longer credit history will increase your score. The score considers both the age of your oldest account and an average age of all your accounts.
10% of your score is based on new credit or if you are taking on new debt. Opening a couple of new credit lines in a short period will hurt this score. If you are planning on buying real estate in the near future, put off buying a car until after it closes. A new car loan can have a big impact on what price of house you can qualify for.
10% of your score is based on types of credit in use. The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans.
30% of your score is based on amounts owned on all accounts.
Even if you pay off your credit cards in full every month, your credit report may show a balance on those cards. The total balance on your last statement is generally the amount that will show in your credit report. The score considers the amount you owe on specific types of accounts, such as credit cards and installment loans. Small balances without missing a payment shows that you have managed credit responsibly, and may be slightly better than no balance at all. Closing unused credit accounts that show zero balances and that are in good standing will not generally raise your score. A large number of accounts can indicate higher risk of over-extension.
35% is based on payment history. The first thing any lender would want to know is whether you have paid past credit accounts on time. This is also one of the most important factors though late payments are not an automatic “score-killer.” An overall good credit picture can outweigh one or two instances of, say, late credit card payments.
]]>Obtain a copy of your credit report and check for errors. Do this prior to your lender ordering one and before mistakes are found.
FICO Scores: What They are and Why They are Important
Next gather all your financial data. Lenders will want to see bank account statements, paycheck stubs, W-2 forms and tax returns for the last two years, investments and proof of any other sources of income.
Down Payment Sources
- Savings
- Sell a car, boat or other property
- Receive a tax-free gift from parents or relatives
- Borrow against a pension plan or a life insurance policy
- Equity share with parents or friends
- Use your business as collateral
If you can make only a small down payment or have credit problems, consider asking the seller to help you with the financing. Example: Sellers can “carry back” a second mortgage to reduce the amount of the first mortgage you need. By reducing the loan-to-value ratio of the first mortgage to 80% or less, buyers often avoid paying for private mortgage insurance when they use a seller-provided second mortgage.
Other Financing Options
If you can’t qualify for a conventional loan because of income, don’t give up. There are a number of special programs to get you into a home. Some cities have BMR (below market rate) housing programs that allow qualified buyers to purchase new homes substantially below market value.
Programs to Help Lower Income Families:
- VA (Veteran)
- Community Homebuyer loan program
- FHA’s 203(k) program (for fixer-upper)
- Mortgage Credit Certificate program (MCC)
- Enhance Fannie Neighbors mortgage program
- Fannie Home Style loan program (for fixer-upper)
… Ask your mortgage loan officer for more information about these programs.
Comparing Programs (ask yourself):
- How long will I live there?
- What are the tax implications?
- Can I expect earnings to increase or decrease?
- Are interest rates likely to go up or down in the near future?
- Questions a Borrower Should Ask
- Are there any “up front” fees?
- What is the annual percentage rate?
- What and how much are the points?
- Is there a prepayment penalty?
- Is there a balloon payment?
- Is the loan assumable by someone later?
- How much money must I have at closing?
- What is the interest rate and term of the loan?
- What is the monthly payment for principal and interest?
- What happens if interest rates change during the loan process?
- Do not hesitate to ask questions.
- Take the time to carefully examine the programs being offered.
- Get a written cost estimate up front.
Financing Facts
- Interest rates are negotiable. Costs for fees may be negotiable.
- Save money by shopping around for your mortgage.
- A larger down payment isn’t necessarily the best way to go.
- It may not be to your advantage to pay off your mortgage early.
- Larger monthly mortgage payments means a larger tax deduction.
- Interest rates on mortgages may be high, but the interest is tax deductible.
- A short-term mortgage will build more equity for you in a shorter period of time.
- Mortgage insurance may be required if the down payment is less than 20%.
- A second mortgage or equity line on top of a low rate first mortgage may be cheaper than refinancing a new first mortgage.
What is the Best Loan?
You can save thousands of dollars or increase your home purchasing power by selecting the right loan. New mortgage programs are constantly entering the market place in response to consumer needs. Take the time to understand and compare programs available to you.
Tax Advantages
With many tax deductions being eliminated, it’s comforting to know that mortgage interest is still deductible. Besides the interest, you also can deduct any points paid to secure a loan on your first or second home. Property taxes on your home are fully deductible. These can add up to a sizable savings on your income tax bill.
Other Savings
You may deduct a portion of your house expenses if you have a qualifying home office.
Tips to Expedite the Loan Process:
- Pay off credit cards before lender orders a credit report.
- Don’t buy a car or take out a loan prior to applying for a loan.
- Don’t charge expensive items on charge cards before getting a credit report.
- Have verification of the down payment and an explanation of the source of money.
- Getting money from relatives? A Gift letter from them will be needed.
- Completely fill out the loan application, providing addresses with zip codes and all account numbers.