Why Is My Credit Bad
January 24, 2010 by · 1 Comment
When you begin the process of securing a home loan, often you will compare mortgage rates first. It is soon after many find that their credit history is nto as good as they thought. Your credit maybe considered bad and causing a low score for a number of reasons. While there are numerous reasons for bad credit some of the more common ones are as follows. You have numerous credit cards that are maxed out or close to the credit limit, you have unpaid judgments or collection accounts, you have 30 day late payments showing on your payment history. All of these examples can cause severe drops in your credit score.
One area people overlook that can negatively impact their credit report is failing to honor mobile phone contracts. Cell phone companies give away free phones to customers who sign on with their services for a specified period of time, usually one to two years. Terminating subscription to the phone service before the expiration and failing to reimburse the phone carrier for the cost of the free phone is considered breaking the contract. Cell phone companies would then report to the credit bureaus and cause a blemish on the credit history. Such blemishes are not serious, but they nonetheless lower credit scores.
Credit scores generally range from about 350 to 850.
* 800+ = great credit
* 700-799 = good credit
* 600-699 = average credit
* 500-599 = bad credit
* under 500 = hard to get a loan at all
Your credit can be bad for a variety of reasons:
Late payments
High Account Balances
Bankruptcy
Collections
Chargeoffs
To minimize negative on your factors you will need to pay down balances, make payments on time, dispute incorrect information, and let the passing of time lessen the impact of past bad credit.
Too many inquires at one time can affect your credit score.
If your credit score is low because of a high balance on a credit card, transfer some of the balance to another card. Try not to open a new card because to do this can also reduce your score.
One reason why your credit may be bad is because of erroneous information reported on your credit report. This can happen to anyone and is actually quite common. This is one reason why you need to check your credit report out at least once per every 12 months. By checking you credit report for free you can keep an eye on your credit and make sure that you take care of any erroneous information when it happens, not when you are trying to apply for a loan and it comes as a surprise to everyone. Utilize your one free annual credit report each year to take a look over your credit to make sure everything looks well. There are many reasons as to why credit report errors can happen so make sure that if errors do happen to you that you rectify the situation immediately.
Maintaining high balances on your credit cards and other revolving debt negatively impacts your credit score. Paying down credit cards balances below the 70%, 50%, and 30% thresholds is a quick way to boost your credit score.
Paying down your credit card balances to around 30% will help your score. If you can, try to keep the balance at that level at all times. If you need to raise your score quickly, and don’t have the money to pay down your balances, you may request that your creditors increase your credit limit. This will in turn lower your balance in comparison to the limit.
Only use this technique if you are responsible with your credit. Once your limit is increased, it may be tempting to go on a shopping spree. Know that if you do this, you will be in a much worse situation than when you started. Not only will you have more debt, but you will increase your ratio of balance to limit.
You should frequently check your credit report at least twice a year to know what your credit profile looks like. Sometimes erroneous items appear on credit that you may not know about and when it comes time to utilize your credit it can affect the rate you will get. Depending on the state you live in, you are allowed at least one free credit report per year from each of the three major credit bureaus; Experian, Equifax and Transunion.
Watch on your credit report for companies that are illegally renewing the chargeoff date every month in order for the account to never gain history. These companies you should call and address this immediately.
Here is a general guidline which outlines the five major types of information used to calculate a FICO score. Each type of information counts as a percentage of a total FICO score:
- 35% Payment History
- 30% Amounts Owed
- 15% Length of Credit History
- 10% New Credit
- 10% Types of credit
There are several ways to increase your credit. However the fundamental principle is the bills must be paid on time. This doesn’t mean by the due date. For the sake of your credit a payment must NEVER be more then 30 days late. If you are acquiring 30 day lates on your credit then your credit standing will deteriorate quickly. Judgments also hurt your credit even if you pay them.
It is also important to note that a credit score is a snapshot. Although it shows your payment history, length of credit, etc., having inaccurate (negative) information removed from your credit bureau report will immediately reflect an increase in your score.
If you do decide to pay off some of your credit cards, be sure to leave the cards open. The credit bureaus look favorably upon accounts that have been open for a substantial period of time, especially if they are showing a zero balance.
Remember that a credit score amounts to a prediction of how likely it will be that you go 60 days late or more on your mortgage in the next two years. One thing that will really lower this score is if you carry high balances on revolving debt and then start making a few of the payments late. This is the pattern of a consumer who is close to getting in trouble with debt.
Things that may go into a collection or judgment that will hurt you credit include unpaid medical payments, unpaid utility payments, and unpaid cell phones or cable payments.
If you have old collections on your credit report, paying them off now can actually hurt your credit. Credit Agencies look at the age of a delinquent item: if you pay it off the “date of last activity” becomes recent instead of old. There are many reputable credit repair agencies or credit counselors that can help guide you in restoring your credit.
Buying REO Properties
January 24, 2010 by · 1 Comment
What IS REO property and how do you buy REO Property ? It is Real Estate Owned. It is property which is in the possession of a lender as a result of foreclosure or forfeiture. In today’s economy there is to put it mildy a surplus of REO property on the market. This may present opportunity for the real estate investor, speculator or home buyer, but be cautious.
Always be sure to conduct home inspection for the bank owned property. The previous property owner might have done something to the property that the bank is not aware of.
Usually, VA or FHA financing is not allowed on REO properties.
The benefit of purchasing a REO owned property would be the discounted prices these properties are priced down to. Lenders are in the business of lending money and will work hard to release properties that have been repossessed and or foreclosed on.
REO – Bank owned properties, can most often be purchased at a discount to current market valuations. Sometimes in really strong real estate Markets, this is not the case.
REO properties are generally sold “as is”, so make you look the property over with a fine tooth comb if you are planning on doing any repairs yourself.
Bank owned properties are often purchased by real estate investors. Many REO houses require a lot of work by investors to be marketable. A handy first time home buyer can buy a REO requiring cosmetic repair and after some repair have instant equity in their home.
Buying Bank Owned Properties
In the world of real estate there are many, many types of properties that you can buy. The majority of the time people hire a real estate agent to help them buy a property that is listed on the MLS (multiple listing service) of the area that they are looking for. Whilst most people go through this route, other, perhaps more astute, or bargain hunting people, look at houses that are either in foreclosure of REO (Real estate owned) by a bank or Loan Company.
A common misconception that people outside of the real estate industry make believes that foreclosure and an REO purchase is the same thing. Although they are similar, they are in fact different; more precisely they are corollaries of each other, with an REO being a direct result of a failed foreclosure sale. To understand the difference between the two and how they vary from each other it is best to define what each is, and their respective merits.
The term Real Estate Owned propriety is sometimes used ambiguously, but has a specific meaning in the real estate industry; a property that has been fore-closured on by a bank or Loan company and has reverted back to the ownership of the lender. So as already explained above an REO is the result of property that has been foreclosed on, and is produced only as a result of a failed foreclosure sale.
Knowing that an REO is the result of a foreclosure leads us to wonder what is foreclosure, what are the benefits of buying a house that has been foreclosed on and what are the reasons why they fail to find a buyer.
Under the terms of foreclosure a bank or Loan Company reposes the property due to the tenants inability to continue with payments on their loan; that they used to purchase the property the first instance.
Once the foreclosure notice has been issued and foreclosure has started the bank or Loan Company legally has the right to sell the property; regardless of whether the tenants haven’t moved out yet.
In order to purchase a property in a foreclosure sale there are a number of items that the bidder needs to successfully complete. Firstly the buyer has to submit a minimum bid that includes the following:
The loan balance on the property. All accrued interest on the property Attorneys fees All costs associated with the foreclosure process.
Regardless of the above, in order to bid at foreclosure the buyer must also have a cashier’s check in hand for the full amount of the bid. If the buyers is successful then they will be offered the house in its ‘as is’ condition; complete with tenants who need evicting and liens secured on the property.
Because of all the difficulties and lack of concrete benefits in buying at foreclosure, most people who want to buy a foreclosed property will go through the REO route.
The REO method of purchase offers much more benefits, incentives and less stress than the foreclosure method.
When a bank or Loan company takes back a property they then have the property listed as a sellable asset on their books. The role of the bank is to maximize the wealth of its shareholders. If the foreclosed property can be sold to release cash to invest, then this is the main motive for the bank or Loan Company; sell the property and invest the cash.
In most situations a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers:
Savings of up to 20% off the market value of the property Market an REO purchase as the most simple way for first time homebuyers and experienced investors to buy properties Give prospective buyers have immediate access to the property for home inspections Remove all back taxes and liens Allow negation on rehab costs, interest, closing points, loan amount, etc. Describe the purchase as nearly 100% risk-free Accept a less than normal down payment
Although the benefits of an REO seem to out weigh those of a foreclosure purchase you should not take them at just face value; you should always look into exactly what you are getting and what you are liable for, should you choose to purchaser a property.
In a REO sale the bank will evict the tenants (or you could leave them there and let them pay rent), remove any liens etc and do the basics. Most of the time however the bank will not make any repairs to the house and want to sell it to you in what is called ‘as-is’ condition: the condition the house was in when it reposed it. IF this is the case you should seek the services of a home inspector, to find out the sate of the property and to help you decide whether you wish to continue the transaction.
Although a bank owned property might look like a good deal on the outside, it is necessary that you do your background research on the property before you commit to any contracts. Your first priority should be to find out what the house is worth in today’s current market; having a comparative market analysis carried out will help you with this aspect of the purchase.
The reality that a bank or loan company is trying to sell its REO property does not necessarily mean that they are going to sell the property at a bargain price; such would be going against their role: to maximize shareholder worth.
If after you have had the property checked you still wish to continue with the purchase you will most likely make the bank or Loan Company an initial offer. Generally the bank’s response will be to counter the offer and ask for a higher price; a standard trick for the industry.
The emphasis will now be on you to decide on what you want to do. If you decide that the price that the bank or Loan Company is asking for does not reflect the market value of the property then you can stop and walk away. If you are happy you can counter their offer and submit a new bid.
It is most likely that the bank or Loan Company will have a whole department to handle their REO transaction, and as such it may take a while to get back to you, as around 3 or 4 people may have to review your offer.
If the bank approves your offer, then great for you! If they reject the offer however you should look at whether you are happy paying more or whether you feel that the price they are asking is either above market value or unacceptable to you.
If you continue with the transaction the bank or loan company will draw up a contract. It is necessary for you to take a good look at the contract and maybe have your attorney go over it with you, as once you sign it you are liable for what it states.
If you have not done so by the time you accept the banks offer you should have the house inspected by a professional. If you are waiting for an inspection, and already have the contract drawn up you should have an inspection contingency written into the agreement, so that you can pull out of any deal if the result of an inspection produce surprises or faults you are not comfortable with. You should always remember that the bank or Loan Company will always want to sell the property ‘as-is’.
You should if possible always consult a Realtor or real estate agent before committing to a contract, or indeed making your offer to the bank or Loan Company. If you do have a Realtor working for you, you should as him or her to find out from the listing agent the following details about the property, before you come to you conclusion on the offer you will make:
Are there any inspection reports? What repair work has the bank agreed to? Is there a special “as is” form? How long will it take the bank to accept your offer? How do you, or your agent, deliver the offer?
Compare Mortgage Rates , The Basics
January 24, 2010 by · Leave a Comment
You do your homework when it comes to buying a car or taking a trip so it makes sense that you would do the same when you are looking to buy a home. It is essential that you compare rates from one financial institution to another to ensure that you are getting the best mortgage package that you can.
When you compare loan rates make sure that you compare interest rates for the same day. Do not compare loan rates for two companies on Monday and two other ones on Wednesday. The reason for this is because interest rates go up and down and are subject to change from one day to the next. Interest rates sometimes change as often as different times throughout a given day.
Compare Loan Rates of the Same Kind
When you compare loan rates compare those that are the same as opposed to different. Do not look at a fixed mortgage rate at one bank and an adjustable rate at another. This defeats your purpose and will do nothing but confuse you. Compare loan rates of products that are the same, such as the rate for a 30 year fixed mortgage or the rate for a 20 year adjustable rate mortgage.
As you compare loan rates, make sure that you compare a selection of lenders at the same interest rate and with the same lock-in period (which is generally 30, 45 or 60 days). The interest rates and points you can be offered will vary from lender to lender. Most lenders will also allow you to choose the lock-in period that is best for you. This is why it is essential to compare loan rates from one lender to another.
Lending Fees
Take the total that you are quoted for lending fees and add it to the points and all of the other fees connected to the home loan. Not all lenders use the same names for all of the applicable fees. For that reason, when you compare loan rates it is essential that you carefully review the total sum of every fee.
What are the fees that are attached to every mortgage? Before you attempt to compare loan rates you have to understand what you are comparing. The fees can include:
· Appraisal fee
· Processing and underwriting fee
· Mortgage insurance premium
· Application fee
· Fee for a credit report
· Tax service fee
· Commitment
· Wire transfer fee
· Any other applicable fee unique to the transaction
Any number of fees can be a part of a mortgage package so it makes sense to compare loan rates in every way that you can. This will help you secure the best deal and save you money in the process!
Getting Cash From Refinancing A Home Mortgage
January 24, 2010 by · Leave a Comment
If you have an adequate amount of equity in your home then the majority of loan programs will allow you to get cash back when you make the decision to refinance. If for example, you have a Fannie Mae conforming loan then the rate will be increased a little bit if you decide to borrow what works out to be more than 70 percent of what your home is worth.
There are some good points and some bad points to using money obtained through equity and refinancing of your home. The good points are that the cash can allow you to pay down or pay off other debts, it can give you more money with which to invest and it can make it possible for you to do the home renovations that you have been wanting to do for a long time. As well, having more cash at your disposal can provide you with a greater sense of peace and security. Often times the interest on the second mortgage is tax deductible.
The biggest downfall of this financial transaction however is that when you refinance your home you use up all of the equity that you have built up in it. So as far as equity is concerned, you end up with a much lesser amount. For some people this is enough of a reason to choose not to refinance their home.
Be aware of course that your home does not really belong to you until you have paid it off. In other words, refinancing your home is analogous to taking out a loan based on the equity in the home. It is comparable to using a secured credit card whereby the bank holds a portion of your money already.
If you decide to refinance your home, bear in mind that there is a three day rescission period. That is why it is important to plan ahead. If you need the money by a certain date then make an appointment to sit down with a mortgage professional at least a week to two weeks in advance.
When refinancing day arrives, be honest with the mortgage specialist about what your intention for the money is and where your financial future is going to take you. Show that you are level headed, responsible and have direction. The needs you have for the money might be better accommodated with another financial option. For example, if you want to consolidate some debts or make improvements to your home then you might be better off applying for a home equity loan instead. Or in some instances, if you have ongoing financial needs you might want to look at getting a home equity line of credit.
If your lender understands where you are coming from, he or she is in a better position to help you make the right decision regarding your money. Cash-out refinances are loans that either pay off debts or take money out of closing. For example, a rate term refinance is one in which the borrower receives $2000 or the lesser of two percent.
You are entitled to more cash when you refinance your primary residence then when you refinance a second home or investment property that you own. The reason for this is because investment properties carry a higher degree of risk to lenders.
A cash-out refinance loan is an excellent method of paying off high interest credit cards. You can also decrease your monthly expenses this way and the interest from the mortgage will be tax deductible.
If you decide to borrow more than 80 percent of your home’s value then you will be expected to pay private mortgage insurance (PMI). The higher your loan to value (LTV) is, the more you will notice your rate climbing. This is what happens when you go with a cash-out refinance loan.
If you choose to go the route of a cash-out refinance it may be in your best interest to do so as a first and then second mortgage. Another option is to just go for the second mortgage. Yet another option is to choose a home equity line of credit (HELOC). If you do the latter you will avoid both PMI as well as a rate increase to your first mortgage.
Be very careful with how you spend the money you get out of the loan. Do not squander the equity that you have built up in your home for years. In the most extreme of cases, if you end up in debt again and cannot pay, the bank can foreclose on your home.
Work closely with the mortgage professional to find a financial solution that is most fitting to your circumstances. Together you can find a way to pay off your debts and still retain ownership of the home you love.
