Home Financing

Why the Guy Who Paid Off His Mortgage in 3 Years Isn't as Smart as You Think - Real Estate News and Advice - realtor.com

OK, I must disagree with this article by a lot..  I'm sharing to get the conversation going but I have yet to see anyone who didn't win big by paying off their mortgage.  The argument put forward is that by having a mortgage you will increase your credit score.  In truth a credit score is a debt score, it is the consumers ability to re-pay debt.  Like life insurance, if they call it what it is, no one would want it.  This is straight out of Dave Ramsey.  They also say that by keeping the mortgage you can focus more on your retirement.  Again a false argument.  For almost everyone your biggest asset is your income stream.  By paying off  debt and refocusing your income stream on investment, in almost every case you will be many many dollars ahead.  The other argument I get about paying off the mortgage is that you will lose your mortgage interest tax deduction.  True, however the last time I checked the deduction for charitable giving was the same as for mortgage interest.  Wouldn't you rather give the money to your church or favorite charity instead of the bank?
Want to learn more?  I'm facilitating Dave Ramsey's Financial Peace University beginning in January.  Sign up online at daveramsey.com or call me for details.
Brian
You’ve gotta hand it to Sean Cooper: In a mere three years, this Toronto homeowner made epic sacrifices to pay off a $255,000 mortgage on his $425,000 house. His reason: “For a lot of people, their mortgage is like a life sentence,” the 30-year-old explained to the press. “I just wanted to not have a mortgage hanging over my head.”

via www.realtor.com


Will my new credit score make it easier for me to get a mortgage?

 

The Consumer Financial Protection Bureau thinks it will.

The home mortgage market in the second quarter improved as demand increased and many banks eased their lending standards.  Note that in August, the average interest rate on a 30-year fixed rate mortgage was 4.12 percent.

New credit scores

A change in how credit scores are tallied will likely make it easier for millions of Americans to get loans and mortgages.  Fair Isaac Corp. has stopped including in its FICO credit-score calculations any record of a consumer failing to pay a bill if the bill has been paid or settled with a collection agency. Further, they will give less weight to unpaid medical bills that are with a collection agency.

These moves are the result of discussions with lenders and the Consumer Financial Protection Bureau (CFPB).

Under the previous system, collections could impact credit scores as much as foreclosures and bankruptcies did. That is changing.

Promoting mortgages and loans

The changes are expected to increase lending, especially among borrowers who were shut out by high interest rates and low credit scores.  The rules are aimed at boosting lending without raising credit risk. Most consumer infractions are small. For example, they are generally on time paying their bills, but disrupted by a  medical emergency. More than half of all debt-collection activity on credit reports comes from medical bills, according to the Federal Reserve.

"The new rules expand banks' ability to make loans to people who might not have qualified, and to offer lower interest rates to others," said Nessa Feddis, senior vice president of consumer protection and payments at the American Bankers Association.


I know that the higher your credit score, the lower your mortgage interest rate will be. Is there a formula for calculating an interest rate?

 

               Fortunately, there's not a standard scale. Each lender decides what kind of risk you will be and how much more than a top credit score applicant you will have to pay.         

               They not only consider your current credit score but also your credit history and the information in your loan application. They don't take their best rate and simply tack on a set premium because you have less than an A credit score.

               That said, the MyFico.com website does show how mortgage rates vary by different credit score ranges.

               As I write this today, the site shows that the national average annual percentage rate, or APR, on a 30-year fixed-rate mortgage for a person with a FICO score between 760 and 850 is about 4.5 percent.

                For a person with a credit score between 620 and 659, the interest rate charged by a mortgage company will be about 1.3 percent higher. Each mortgage company or lender determines its own rate, but this gives you an idea of how they calculate. Of course, the lower your score is, like 620 or less, the higher your interest rate will be.

               You could qualify for a higher credit score within months or a year if you pay down some debt and make all of your payments on time.

               Don't give up a paid-off credit card, because it's to your advantage to have available credit that isn't being used.

               The difference in interest rates shows why it's so important to get your credit history on track before applying for a loan.

            Most negative information drops off your credit report in seven years. The exceptions are a Chapter 7 bankruptcy filing or an unpaid judgment against you on a law suit. These items stay on a credit report for 10 years.

 

Brian Leavitt

MLO 114864

 


What You Can Do to Improve Your Credit

Credit scores, along with your overall income
and debt, are big factors in determining whether you’ll qualify for a loan and what
your loan terms will be. So, keep your credit score high by doing the
following:

1. Check for and correct any errors
in your credit report. Mistakes happen, and you could be paying for someone
else’s poor financial management.

2. Pay down credit card bills. If
possible, pay off the entire balance every month. Transferring credit card debt
from one card to another could lower your score.

3. Don’t charge your credit cards to
the maximum limit.

4. Wait 12 months after credit
difficulties to apply for a mortgage. You’re penalized less for problems after
a year.

5. Don’t order items for your new
home on credit — such as appliances and furniture — until after the loan is
approved. The amounts will add to your debt.

6. Don’t open new credit card
accounts before applying for a mortgage. Too much available credit can lower
your score.

7. Shop for mortgage rates all at
once. Too many credit applications can lower your score, but multiple inquiries
from the same type of lender are counted as one inquiry if submitted over a
short period of time.

8. Avoid finance companies. Even if
you pay the loan on time, the interest is high and it will probably be
considered a sign of poor credit management.


This information is copyrighted by the Fannie Mae Foundation and is used
with permission of the Fannie Mae Foundation. To obtain a complete copy of the
publication,
Knowing and
Understanding Your Credit, visit www.homebuyingguide.org.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.


5 Factors That Decide Your Credit Score

Credit scores range between 200 and 800, with scores above 620 considered desirable for obtaining a mortgage. The following factors affect your score:

1. Your payment history. Did you pay your credit card obligations on time? If they were late, then how late? Bankruptcy filing, liens, and collection activity also impact your history.


2. How much you owe.  If youowe a great deal of money on numerous accounts, it can indicate that you are overextended. However, it’s a good thing if you have a good proportion of balances to total credit limits.

3. The length of your credit history. In general, the longer you have had accounts opened, the better. The average consumer's oldest obligation is 14 years old, indicating that he or she has been managing credit for some time, according to Fair Isaac Corp., and only one in 20 consumers have credit histories shorter than 2 years.


4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay them promptly.

5. The types of credit you use. Generally, it’s desirable to have more than one type of credit — installment loans, credit cards, and a mortgage, for example.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.



For more on evaluating and understanding your credit score, visit www.myfico.com.


Lender Checklist: What You Need for a Mortgage

□         W-2 forms — or business tax return forms if you're self-employed — for the last two or three years for every

person signing the loan.

 

□         Copies of at least one pay stub for each person signing the loan.

 

□         Account numbers of all your credit cards and the amounts for any outstanding balances.

 

□         Copies of two to four months of bank or credit union statements for both checking and savings

accounts.

 

□         Lender, loan number, and amount owed on other installment loans, such as student loans and

car loans.

□         Addresses where you’ve lived for the last five to seven years, with names of landlords if

appropriate.

 

□         Copies of brokerage account statements for two to four months, as well as a list of any other major assets of

value, such as a boat, RV, or stocks or bonds not held in a brokerage account.

 

□         Copies of your most recent 401(k) or other retirement account statement.

 

□         Documentation to verify additional income, such as child support or a pension.

 

□         Copies of personal tax forms for the last two to three years.


10 Questions to Ask Your Lender

1. What are the most popular
mortgages you offer? Why are they so popular?

2. Which type of mortgage plan do
you think would be best for me? Why?

3. Are your rates, terms, fees, and
closing costs negotiable?

4. Will I have to buy private
mortgage insurance? If so, how much will it cost, and how long will it be
required? (NOTE: Private mortgage insurance is usually required if your down
payment is less than 20 percent. However, most lenders will let you discontinue
PMI when you’ve acquired a certain amount of equity by paying down the loan.)

5. Who will service the loan — your
bank or another company?

6. What escrow requirements do you
have?

7. How long will this loan be in a
lock-in period (in other words, the time that the quoted interest rate will be
honored)? Will I be able to obtain a lower rate if it drops during this period?

8. How long will the loan approval
process take?

9. How long will it take to close
the loan?

10. Are there any charges or
penalties for prepaying the loan?


Used with permission from Real Estate Checklists & Systems, www.realestatechecklists.com.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.


Budget Basics Worksheet

The first step in getting yourself in financial shape to buy a home is to know exactly how much money comes in and how much goes out. Use this worksheet to list your income and expenses below.

 

INCOME

                                                                     

Take Home Pay (all family members)

    

Child Support/Alimony

    

Pension/Social Security

    

Disability/Other Insurance

    

Interest/Dividends

    

Other

    

Total Income

 

 

EXPENSES

    

Rent/Mortgage (include taxes, principal, and insurance)

    

Life Insurance

    

Health/Disability Insurance

    

Vehicle Insurance

    

Homeowner’s or Other Insurance

    

Car Payments

    

Other Loan Payments

    

Savings/Pension Contribution

    

Utilities (gas, water, electric, phone)

    

Credit Card Payments

    

Car Upkeep (gas, maintenance, etc.)

    

Clothing

    

Personal Care Products (shampoo, cologne, etc.)

    

Groceries

    

Food Outside the Home (restaurant meals and carryout)

    

Medical/Dental/Prescriptions

    

Household Goods (hardware, lawn, and garden)

    

Recreation/Entertainment

    

Child Care

    

Education (continuing education, classes, etc.)

    

Charitable Donations

    

Miscellaneous

    

Total Expenses

    

Remaining Income After Expenses

(Subtract Total Income from Total   Expenses)

    


Get Your Finances in Order: To-Do List

1. Develop a household budget. Instead of creating a budget of what you’d like to spend, use receipts to create a budget that reflects your actual spending habits over the last several months. This approach will factor in unexpected expenses, such as car repairs, as well as predictable costs such as rent, utility bills, and groceries.

2. Reduce your debt. Lenders generally look for a total debt load of no more than 36 percent of income. This figure includes your mortgage, which typically ranges between 25 and 28 percent of your net household income. So you need to get monthly payments on the rest of your installment debt — car loans, student loans, and revolving balances on credit cards — down to between 8 and 10 percent of your net monthly income.


3. Look for ways to save. You probably know how much you spend on rent and utilities, but little expenses add up, too. Try writing down everything you spend for one month. You’ll probably spot some great ways to save, whether it’s cutting out that morning trip to Starbucks or eating dinner at home more often.

4. Increase your income. Now’s the time to ask for a raise! If that’s not an option, you may want to consider taking on a second job to get your income at a level high enough to qualify for the home you want.

5. Save for a down payment. Designate a certain amount of money each month to put away in your savings account. Although it’s possible to get a mortgage with only 5 percent down, or even less, you can usually get a better rate if you put down a larger percentage of the total purchase. Aim for a 20 percent down payment.


6. Keep your job. While you don’t need to be in the same job forever to qualify for a home loan, having a job for less than two years may mean you have to pay a higher interest rate.

7. Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills, too. Pay off the entire balance promptly.

Reprinted from REALTOR® magazine (REALTOR.org/realtormag) with permission of the NATIONAL ASSOCIATION OF REALTORS®.

Copyright 2008. All rights reserved.


Educating Yourself About The Home Buying Process

Educating yourself about the home-buying process is key to getting a home you love and can afford. As your REALTOR®,  We are here to answer any questions you might have and guide you through this process. 

The following is a list of articles and resources to assist you in the home buying process.  Click the ling to go to the specific article.

 

Not every broker is a REALTOR®,  Why you should work with a REALTOR®, 

7 Reasons to Own Your Home

Take the Stress Out of Home Buying

Agency Law

Common First-Time Buyer Mistakes

Your Property Wish List

Tips for Finding the Perfect Neighborhood

Eight Tips to Guide Your Home Search

Tips for Buying in a Tight Market

Does Moving up Make Sense?

What a Home Inspection Should Cover

5  Property Tax Questions You Need to Ask

5  Things to Know About Homeowners Insurance

Tips for Lowering Homeowners Insurance Costs

Five Things to Know about Title Insurance

Pros and Cons of Going Condo

10 Questions to Ask the Condo Board

8  Reasons You Should Work with a REALTOR®

What Is a Home Warranty?

How Big A Mortgage Can I Afford?

10 Questions to Ask Your Lender

Lender Checklist: What You Need for a Mortgage

Budget Basics Worksheet

Get Your Finances in Order: To Do List

5  Factors That Decide Your Credit Score

What You Can Do to Improve Your Credit

What Not to Overlook a Final Walk-Through

17 Tips for Packing like a Pro

Closing Documents You Should Keep

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