I believe there are many potential homebuyers who can qualify for a loan, and want to be a homeowner, but they just haven’t been educated to the many options available for them. Often, when considering how their monthly payment may be higher than renting, they fail to factor in the tax benefit they’ll get, and don’t understand this: either you pay the lender or the taxman! So, if you want to be a homeowner, and have a steady income and decent credit scores, there probably is a way to make it happen. Let’s talk!
We’ve posted before about the difficulty of renting, especially in the San Francisco Bay Area. New factors have now come to play in rentals, specifically the ability for landlords to rent daily instead of monthly, using sites such as AirBNB, making much more cash per month. Daily rentals have become a game-changer in many rental markets.
We’ve seen listings that are being rented this way, with a different occupant in each of the bedrooms – so the owner can collect top rents even as it is listed for sale.
This link paints a bleak picture of renting in coming years, in many areas of the country.
What can a current renter do about this? We believe there are options that the buyer may not have considered, including:
- Down-payment Assistance programs – allowing for a purchase with just .5% down or $500 per $100,000 purchase price!
- Equity Sharing – co-own with other buyers.
- Multi-family purchases – have the tenants rent added to your income for qualifying purposes.
- The main advice we are offering today is: Talk to mortgage and Sales professionals to explore options and opportunities. Make it your mission to become a homeowner & it can happen.
Credit scores are often a mystery to borrowers, and many have never heard of credit scores. Credit scoring has become the primary factor for lenders making a favorable credit decision for a borrower.
It’s important to get your credit score as high as possible if you want to qualify for the best loans and credit. Most lenders don’t even look at your credit report; they stop at your credit score. FICO credit scores range between 350 and 850, with 850 being the very best score possible. If you have below a 680 score, there is room for improvement and if your score is lower than that, you might be feeling left out. It is possible to raise your score to a much higher level, and here’s some ways to do it.
What makes up your credit score?
My FICO.com, the original developer of the commercial credit scoring model, has published basic guidelines of what goes into your score:
- 35% – Payment history
- 30% – utilization or how much available credit you use.
- 15% – length of time using credit
- 10 %– types of new credit received
- 10% – types of credit used
Things you should know about credit: (reprinted )
1. Great credit can save you money.
When you have a great credit score, which starts at around 750, you might be offered better interest rates for mortgage loans, car loans and credit cards. Lenders also use the scores to disqualify consumers for the best, most competitive terms and rates.
2. FICO is the most commonly used score.
The FICO Score, created by the Fair Isaac Corporation, is the most-often used credit score by lenders to determine whether to lend you money. You have a slightly different FICO score for each of the three credit bureaus based on information in each credit report.
3. “FAKO” scores are just non-FICO credit scores.
A “FAKO” score is a term used to describe other reputable, non-FICO credit scores such as the VantageScore, which was developed by the three credit bureaus. Experian also offers the Experian National Risk Model, and TransUnion offers the TransUnion New Account Score.
4. Credit scores vary and can change.
Different types of scores might vary from one another, and scores can increase or decrease over time based on information in your credit reports.
5. You can get your credit scores for free.
There are now many ways to get access to both FICO and non-FICO scores. Some are for a fee and some are for free.
6. You might not know which score lenders use.
When you apply for credit, you might never know which credit score or version any specific lender will use to check your credit score.
7. You have the right to know why you were denied credit.
According to the Fair Credit Reporting Act (FCRA), you have to right to know if information in your credit report was used against you and you were denied credit, employment or insurance.
8. Negative items stay on credit reports for a long time.
Most negative items, including any late payments, collections, foreclosures, charged-off accounts, repossessions and tax liens, can remain on your credit report up to seven years from the time of the late payment or default. A Chapter 13 bankruptcy remains on your credit history for seven years, and a Chapter 7 remains for 10 years. Unpaid tax liens can stay on your credit report indefinitely.
9. Negative items can be removed (sometimes).
According to the FCRA, when you challenge a collection account and the item cannot be verified with the reporting source, then it must be removed from your credit report. Outdated (past seven to 10 years, depending on the negative item) and incorrect collections accounts must be removed.
10. Tax liens can be withdrawn from credit reports.
The IRS allows you to have a tax lien withdrawn if you enter into a repayment agreement or pay it in full. The credit bureaus can then withdraw the tax lien from your credit report.
11. Paying bills on time can boost your score.
The number one, quickest way to improve your credit score is to consistently pay all of your bills on time. Your payment history alone accounts for 35 percent of your total FICO score. And, on-time payments are updated every 30 days with the credit bureaus.
12. Technology can help you pay your bills on time.
A budget and a calendar, as well as text or smartphone alerts, can help you pay bills on time and avoid unnecessary late fees and bank fees.
13. Credit card utilization can repair your score.
The second best way to boost your credit score is to pay off debt and reduce the amounts owed to below 10 percent of your credit limits. This will improve your credit usage relative to your credit limit (called credit card utilization), which accounts for 30 percent of your FICO score.
14. Charging cards with balances doesn’t help.
Stop charging on cards that carry an existing balances if you want to boost your credit score.
15. Paying off balances early results in a good payment history.
If you don’t carry balances, using your credit cards periodically for purchases you can afford to pay off before the payment is due can help establish a good payment history without accruing any interest charges.
16. Emergency funds can prevent credit card usage.
An emergency fund in a separate bank account, even just $1,000, can prevent you from resorting to using your credit cards when an emergency strikes.
18. Naming your teen as an authorized user can help build their score.
Teens can get a FICO score if they have any credit account open for at least six months. Making a teen an authorized user on a parent account that you can control is a good way to help them build a positive credit history.
19. Student loan debt can hurt credit scores.
To help teens and young adults boost their future credit scores, talk to them about how to reduce their reliance on student loans for college, whether it is attending a less expensive state school or community college, working at a job before college, applying for scholarships or maintaining a high GPA to qualify for state and institution-based grants.
20. Co-signing loans can hurt your credit.
You should think twice, maybe three times, before co-signing loans of any kind, including student loans, car loans or credit cards, for your kids or grandchildren. It is not a good way to boost your credit score, because the debt will be yours should they default.
21. Identity theft might negatively affect your score.
Identity fraud and theft can wreck your credit score quickly. Signs of identity fraud include accounts you didn’t open, purchases you didn’t make and services you didn’t order, which might appear on your credit report and affect your scores negatively. Tracking your credit score often for unaccounted decreases can detect identity fraud. You can also check your credit reports from each of the three bureaus every four months through the federally authorized site, annualcreditreport.com.
22. Keeping unused credit cards can pay off.
Keeping paid off or unused credit cards can help boost your credit score because you are keeping that unused credit (remember “credit card utilization” above?). Closing your unused credit cards to boost your score isn’t a smart strategy.
23. Hard inquiries can impact your score.
Several or frequent “hard inquiries” can decrease your credit score if it looks like your lifestyle is credit-dependent. However, checking your credit scores and credit reports does not result in a hard inquiry.
24. Credit repair companies can do the work for you.
While you can repair your credit and boost your score yourself, a reputable credit repair company has expertise in dealing with the credit bureaus and can more efficiently identify derogatory items on your credit reports that can be changed. They can challenge those derogatory items and confirm they have been removed to boost your credit score faster.
25. Silverado Home Mortgage can help with credit evaluation and planning.
We offer re-scoring for our borrowers who need better credit to obtain the best loan and rates available. Credit repair and Credit rescoring are different, as the rescoring is improvements done in days, and repair is a longer process. Ask us for details.
Report Finds 26 Million American Adults Have No Credit History – (Must use credit to have Credit Scores)
We often meet people who don’t understand that they must use credit to have a credit history, and thus a credit score. Also, after a detrimental financial event such as a foreclosure or Bankruptcy, some feel that their best option is to no longer use credit. The result is potential borrowers, having only poor credit, cannot obtain financing even for basic credit cards.
A report titled “Data Point: Credit Invisibles” published by the Consumer Financial Protection Bureau (CFPB) Office of Research found that 26 million American adults (about 10 percent) do not have a credit history with any of the three nationwide consumer reporting agencies. (Experian, Transunion & Equifax) The individuals have been deemed “credit invisible.”
- An additional 19 million consumers, or 8.3 percent of the adult population, had credit records that were treated as “unscorable” by a commercially-available credit scoring model.
- Almost 30 percent of consumers in low-income neighborhoods are credit invisible and an additional 15 percent have unscored records. These percentages are notably lower in higher-income neighborhoods.
- Blacks and Hispanics are more likely than whites or Asians to be credit invisible or to have unscored credit records. About 15 percent of blacks and Hispanics are credit invisible (compared to 9 percent of whites and Asians).
- An additional 13 percent of blacks and 12 percent of Hispanics have unscored records (compared to 7 percent of whites).
- These differences are observed across all age groups, suggesting that these differences materialize early in the adult lives of these consumers and persist thereafter.
- CFPB Director Richard Cordray commented, “A limited credit history can create real barriers for consumers looking to access the credit that is often so essential to meaningful opportunity—to get an education, start a business, or buy a house. Further, some of the most economically vulnerable consumers are more likely to be credit invisible.”
In upper-income neighborhoods, only 4 percent of adults are credit invisible and another 5 percent have unscored credit records.
How to build credit
With poor or no credit, the first extension of credit is difficult to obtain, but the successive requests are more positive, once credit is established. Possible first extenders would be:
- Retail jewelry stores with large cash deposit
- Auto purchase, with a large cash deposit.
- Credit cards with large security deposit but some credit extended (for example, 125% of deposit), thus showing up on as credit extended on their credit report.
Once credit is obtained, it is very important to use the account regularly, and always make the monthly payment on time. Paying just one day late on monthly payments can negatively impact credit, so the monthly payment should always be paid early.
There are two types of credit types, one is revolving and the other is installment. A revolving account (like a credit card) is where there is no specific payoff date and the account often continues until closed by borrower.
An Installment loan (car payment) has a loan term, and the loan is closed on the last payment.
Both types of financing should be on your credit report, to have a strong credit history, and great credit scores.
What is a desirable credit score?
- 800 FICO is extremely strong, and somewhat rare.
- 720 is a good score and usually gets preferred rates.
- 640 is fair credit.
- 580 and below is poor credit.
- 450 is about the score upon exiting 7 Bankruptcy.
Credit scoring is in evolution. Soon medical and other collections will be less detrimental to credit scores and history.
The main thing to remember is – a credit score is very important if a person wants to obtain credit, from credit cards, to a home purchase.
We often talk to potential home buyers who just feel like the prices and payments for Bay Area homes are too high, and decide to keep renting, even though they are qualified to buy. This may seem like the “safe bet” but it’s actually more risky than buying a home. These graphs tell the story:
- San Francisco Bay Area population is projected to continue to grow much faster than new housing construction.
- Not nearly new homes are being built in this region.
Homes are getting less affordable, even with record-low interest rates!
It’s not hype – if you want to be a homeowner and avoid the difficulty of renting in coming years, if you are qualified, buy now! Ask us how to make this a reality!
Timelines after a negative housing or credit event have been evolving and the new timelines for the borrower (who had an event) are listed below. However, there are exceptions to these rules, and it’s possible to buy a home just one year after an “event”.
This program is the FHA back to work program.
*A consumer who sold his or her home in a short sale or lost it in a foreclosure would normally have to wait 36 months to purchase a primary residence again with an FHA fixed-rate mortgage. However, the FHA Back to Work Program allows a buyer to purchase a primary home just 12 months after a foreclosure, short sale, or deed in lieu of foreclosure. Read the rest of this entry »
People will have had close to two years to get ready for this. Nobody should be surprised by this.” — CFPB Director Richard Cordray
Once again, we have a new Good Faith and Truth-in-Lending disclosure change, (GFE & TIL are eliminated) with new disclosures coming, designed to be easier for the consumer to use. The introduction of the Loan Estimate and the Closing Disclosure forms is right around the corner. Beginning Aug. 1, 2015, the Good Faith Estimate (GFE), the HUD-1 and the Truth-in-Lending Act (TILA) disclosures will be replaced in most transactions by two new forms – the Loan Estimate and the Closing Disclosure. The Loan Estimate will be provided when the borrower applies for a loan. It replaces the GFE and the initial TILA disclosures. The Closing Disclosure will be issued toward the end of a transaction. It replaces the HUD-1 and final TILA disclosures.
There are also new rules for escrow closing. Regulations will require all forms to be ready three days prior to closing, and NAR is recommending borrowers forms are complete seven days before closing, so when you go into the three-day period, no changes are needed. Closing definitely will become more complicated.
We’re hoping that it will be easier to understand and be more usable to the consumer. When the last change was made, the GFE form was greatly expanded, from one page to three, and yet it was more confusing than ever. The result was that the borrower gave up on trying to understand it, and were not enlightened and informed about the loan product they were using.
Maybe they can keep a Steve Jobs quote in mind – “Simplicity is the ultimate sophistication”
I often meet potential homebuyers who are prevented from buying by one thing – not enough cash for the down-payment. For the past several years, the minimum down for conventional was 5% and a 95% loan-to-value (LTV) mortgage. FHA loans, with high mortgage insurance rates, required 3.5% down, in most cases.
Fannie Mae understands the importance of bring in new, first-time buyers into the market, which allows all homeowners to have move-up options, and stimulates the housing market. So, it’s exciting news that we are now able to obtain 97% financing for new homebuyers; this program is only available when one of the purchasers have not owned a home for the past three years.
What great timing! Many former homeowners are yearning to end renting, and return to owning their own home. It’s been a few years now since the bulk of the distressed sales occurred, and now it’s time for their return. Interest rates are still surprisingly low, so this is a very good time for a homebuyer.
For more information from Fannie Mae on this program, click here
For professionals and consumers, Google can be used as a source of almost endless information – providing anything from listing information, property research, and connecting buyers and sellers with agents – making it an invaluable tool to anyone interested in real estate.
Google has become the most trafficked website around the globe, reaching an astonishing 5,922,000,000 searches per day, and there’s a good reason why – it’s possibly the most powerful search engine in the world!
With all the information available on Google, searches often deliver more information and less specific details, than desired. This link shows how to input your search inquiry, to get more accurate information in your internet searches. https://support.google.com/websearch/answer/136861?hl=en