down payment
This Simple Plan to Boost Your Credit Score May Surprise You
We’ve all been there. Well, hoped we be there. We’ve all set timelines for ourselves and thought, “I should have xyz by now” or “I thought I would be in a position to do xyz.”
One of those variables may have been buying a house this summer. You’re hoping to stop wasting your money on rent and start putting money into your own asset, but a few hurdles got in the way. One of them may be your credit score.
Of course, there are many steps to take before you even begin looking for a home and for most of us, that’s going to be obtaining a loan of some sort and finding out how much you can borrow. This will be heavily determined by your current income, down payment and credit score—which is where some people fall short and give up.
To get a loan, and to get a loan quickly, you as a potential homebuyer need to keep an eye on your finances and credit.
Our experience over the years of working with preferred and qualified lenders has supplied us with a list of basics for you to refer to when monitoring and building your credit.
- Always, always pay on time. No lender likes to lend money knowing that an individual has a repeated record of skipping payments. This indicates a lack of discipline and poor financial management. If it’s just a matter of discipline, enroll in AutoPay, set a calendar and keep track of what you owe and when. This can account for up to 40% of your FICO score.
- Keep a good debt-to-income ratio. Someone with a good ratio has unsecured outstanding credit that is below 50 percent of their annual salary. Try keeping your credit card balances within half of the allowed limit. If your limit is $10,000, restrict your statement to $5,000.
- Pay high interest loans first. Typically, personal loans have the highest interest, so it’s wise to pay those off first since they don’t create any type of asset for you. Home loans, on the other hand, are an asset and can be paid off over a longer period of time.
- Check your credit report. This can be done at minimal cost or you can obtain it from the official FICO site. Checking at least once a year will help you seek any clarification that is needed or allow you to correct any mistakes that have been made.
- Let them know if you can’t pay on time. Most often, people know in advance if they’re going to be late on a payment. If you do, taking action to notify the institution can reduce any penalties or late fees and make a good impression.
This will all take time, but if home ownership is your goal, use these tips to help build your credit and obtain a loan more easily.
Baby Boomers vs. Millennials
Two demographics influencing the housing market are baby boomers and fist-time buyers plagued by student loan debt. Both groups are leaving stagnant markets and low turnovers.
Baby boomers themselves control about two-thirds of the nation’s aggregate home equity, which computes to about $8 trillion. Whether they decide to move from their current place, downsize or age in place, the cumulative impact of their decisions on mortgage demand, housing options to Millennials and other aspiring homeowners will be substantial.
In a recent survey by Freddie Mac, 63 percent of respondents age 55 and over prefer to age in place, which computes to 42 million homeowners spread out across the entire 55+ demographic. These numbers suggest baby boomers’ housing decisions over the next few years “will take our market to brand new places.” says Freddie Mac Economist Sean Becketti.
Not only are baby boomers staying put, so are Millennials buried in student debt. Nearly three-quarters of people who are repaying student loans say their debt is hindering them from buying a home, according to surveys released by the nonprofit American Student Assistance.
More staggeringly, nearly half of those surveyed said their debt is expected to delay their home buying for at least five more years.
The housing market feels these affects keenly, as the homeownership rate among the 35-and-younger crowd has plummeted from 44 percent at the height of the housing boom to 34 percent today.
Getting the Right Representation When Buying A Home
So, you’ve decided to do it. You’ve set a goal, set your budget and location, got pre-approved and you’re ready for it. You’re doing it. You’re going to buy a home.
Now what? A home purchase is a significant and expensive transaction with long-term implications. You want to buy wisely, at the right price and on good terms. But if you overpay for a home or buy one that involves more upkeep than you can manage, you may end up with buyers remorse.
In order to make the best decision on buying your home, you need to have the best possible information and guidance to make a well-informed decision from someone who’s fiduciary duty is to you solely. Using an Exclusive Buying Agent provides you with the level of representation you need to make sure you aren’t overpaying, overlooking the upkeep, or buying on bad terms. This also helps to avoid any conflicts of interest.
An Exclusive Buyer’s Agent is just that: a real estate professional branded towards representing homebuyers exclusively. Compare this with a dual agent, or sellers agent, who’s vested interest lays across multiple platforms—to the seller and to the homebuyer.
An Exclusive Buyer’s Agent will:
- promote and protect the interests of the buyer with the utmost good faith, loyalty and fidelity, by law
- educate you on local market conditions and the home buying process in general
- perform cost comparisons to protect you from overpaying
- negotiate price and terms exclusively on your behalf
If an agent gives you dual agency disclosure, they aren’t representing you. Conflicts of interest arise when a selling agent represents both the buyer and the seller, and still carries a fiduciary duty to the sellers, which means you don’t get the best deal possible. If you meet a seller’s agent at an open house, for example. and mention to them your need to relocate in one month’s time, that agent must promote the interests of the seller by law and inform the sellers of your situation, thus diminishing your negotiation power.
Beat Out the Competition With A Winning Offer
You’re ready to buy a home. You even find one that you love 2 weeks into your search and even offer 5 percent over the listing price, just to make sure it’s yours and no one else’s. Then your real estate agent calls: 12 other offers had been made, and yours isn’t even in the top three.
When inventory is low, competition is stiff. A seller’s asking price becomes just that: an asking price. A seller may choose to price their home well below what the market will bear, with hopes of attracting multiple offers. As a potential buyer, you may be forced to compete with other buyers in a bidding war. Here are a few tips to beat the competition.
Make sure you’re working with a good agent that “gets it”. A seller is looking for a sure thing and a smooth, clean escrow. Experienced agents have relationships with inspectors, contractors, mortgage brokers and appraisers to help facilitate this process, not to mention good standing relationships with other agents. When faced with multiple offers, a seller, guided by their agent, may choose to work with a lower priced offer because that buyer has a good agent.
Get your financing in order before making an offer. This means being pre-approved for a loan and staying in regular contact with your lender during your search. You’ll need to be ready to move as soon as homes hit the market, having a pre-approval letter and financing in order will help you present yourself as a strong, motivated buyer.
When the opportunity comes, don’t wait. We hear this all this the time, “I wish I hadn’t waited on ‘Bleaker St’. Now it’s gone.” The buyers who don’t rest on their laurels get the home. If you’re serious about buying and have your financial ducks in a row, don’t wait for the open house, don’t wait for your husband’s mother to fly in from Utah to see it. Knowing what you need, and knowing what you want are two different sets of lists. If you see a home that meets your criteria, it’s likely that it won’t be there in two weeks, so be prepared to act fast.
How Much Do I Need to Put Down?
If you’re like us, you have a list of resolutions this year. A lot of people we’ve spoken with lately tell us that buying a home in 2016 isn’t necessarily their New Year’s resolution, but planning to buy a home is–with one thing in their way: the down payment.
Most of us often feel anxious and overwhelmed at the idea of saving for a down payment. The good news is that first-time home buyers can purchase a home with as little as 3 percent down in some programs. There are a few stipulations to this, but we’re giving you the lowdown below.
The less you put down, the higher the mortgage balance, and the more you’re going to pay. Typically, homebuyers who don’t make a minimum down payment of 20 percent will be required to pay private mortgage insurance (PMI).
What is PMI and how much does it cost?
PMI protects the lender in the event you default on your loan. The cost is most often added to your monthly payment if you’re taking a conventional loan, while loans offered through the Department of Veterans Affairs, the U.S. Department of Agriculture and the Federal Housing Administration handle PMI differently.
The less you put down, the higher the mortgage insurance is. With say, 5 percent down, your PMI is quite high. The total cost of PMI depends on your credit score, and is calculated in terms of risk in tandem with the size of your down payment. For each $100,000 borrowed, PMI typically runs between $30 and $70 per month. If you’re buying a home worth $500,000, with say, 10 percent down, with a 30-year-fixed rate at 4.25 percent, you could expect to pay up to $200 per month in private mortgage insurance.
You have options. If you need to pay PMI, the size loan you can get will be slightly smaller, to allow for the bigger payment. If you get a conventional mortgage, you can get an appraisal and write to your lender and ask to have the PMI removed once you have more than 20 percent equity in the house. FHA loans, on the other hand, have PMI attached for the life of the loan.
So how much should you put down?
Depends on your personal circumstance. You’ll want to make sure you have enough on hand for closing and upfront costs, such as a years worth of taxes and insurance. We suggest speaking with a mortgage broker who can examine your current situation and make a plan that’s in line with your goals. A good mortgage broker can help you weigh your options and help you decide how large of a down payment you’ll need.
There are a few popular programs you can get with a low down payment, which may be particularly appealing to first-time home buyers.
Conventional mortgage: Fannie Mae and Freddie Mac can back loans with as little as 3 percent down. To qualify for this type of loan, you’ll need good credit. If your credit isn’t in good shape right now, talk with a broker than can put you on a good trajectory to start the repair process.
Federal Housing Administration loan: This can be more expensive than a conventional loan, but the FHA has backed loans with as little down as 3.5 percent. They’re also more willing to back loans with buyers who have lower credit scores and thinner credit records. PMI will certainly be factored into this, making the size of the loan you’ll be able to afford a bit smaller due to the monthly payment.
U.S. Department of Veteran Affairs: If you served in the military, you can get a loan backed by the VA with no down payment at all. You’ll have loan origination or funding fees but those can be financed in. This is a really good program, though you’ll still need to qualify based on credit and income. The interest rate is low, there’s no PMI and you may find some extra perks along the way.