10 Ways to Improve your Credit

Getting Pre-Approved? Check Your Credit:

If you’ve been thinking of getting pre-approved to buy a home, now is the ideal time to review your credit.

According to the Federal Trade Commission, over 20% of credit reports are wrong and it is important to check your credit early so you have time to do something about it.

Lenders consider Four Key Things when prequalifying you for a mortgage and ultimately giving you access to financing:

  • Credit – Intent to pay and the commitment to handling credit responsibly
  • Income – This shows the ability to repay the loan
  • Assets – Larger down payments show more skin and commitment in the game
  • Employment History – Consistency indicates strength and continued income

If you know how, you can improve your credit. This helps in getting approved, obtaining better programs and accessing a less costly loan. It also expedites the process due to fewer obstacles to overcome.

Credit Scores Matter:

Most people don’t realize how much a good credit score can impact their lives.

Whether you are applying for a mortgage, purchasing auto insurance, getting a cell phone, opening a checking account or applying for a job, most likely your credit report will be considered.

If your credit score is low due to poor payment practices or incorrect information on your report, you may pay the price when you least want to. Even if you aren’t declined while applying, you will most likely pay much more for the credit or services you purchase.

Below are 10 things you can do to improve your credit score:

Erase the Dings: Contest entries that are incorrect or a result of identity confusion. Contact the creditor if you notice any errors. If they say no then you can go directly to the credit bureau reporting it. You can go on-line, pay for their report and contest the error. Sample Dispute Letter

Increase Your Credit Lines: Higher credit lines will improve your credit utilization ratio. This is the balance on the account divided by the high limit. Lenders like to see utilization under 50% and even lower. This should help improve your score significantly.

Pay Debt Off: Lower the total balance owed on each account. This is another way to lower your credit utilization ratio. Most bureaus like to see 30% ratios, but there are increasing benefits and score improvement the lower the ratios are:  50%, 30%, 10% and 0%.

Hire a Reputable Credit Repair Company: A good Credit Repair Company understands the Federal Credit Reporting Act, and knows how to use this bill of rights to fight for and protect consumers. Items may often be removed due to improper reporting.

Consolidate Debt: If you have multiple credit cards, consider consolidating cards with higher utilization ratios to cards with lower utilization ratios. There is often one card with a very high balance while another might be low. Get each card under at least 50%.

Check Your Credit Report Annually: Review for errors. The Federal Trade Commission found at least 20% wrong and consumers wrongfully paying higher interest rates. Incorrect addresses, spelling of name, and negative marks not yours may be disputed and removed.

On-Time Payments: Making on-time payments monthly is important to a high score. Pay a few days late and you might pay a fee, but pay 30 + days late and it will hurt your credit. 35% of the Credit Score is due to on-time payments. A little carelessness can cost big.

Be Patient: If you’ve had a major event, such as a bankruptcy or foreclosure, time is your friend. While these events should not hold you back after 7 years, it takes 10 years to fall off the report. Typically a collection takes 7 years and 180 days to fall off from initial late.

Protect Your Identity: Credit can be ruined quickly when your information is stolen. Accounts are opened in your name, negative activity occurs, and it is difficult to reverse. Review statements carefully and be cautious where you share your private info.

Start Building Credit in Your Own Name Early: A great way to start is as an Authorized User or a Joint Guarantor on a parent’s account. Be careful that it is not a card that regularly keeps a balance as the payment will need to go into your monthly debt responsibility.

Wondering where to start?

If this all seems overwhelming, or a little scary, just give us a call. The only way to know what your mortgage credit score looks like is to run a Mortgage Credit Report.

Free Online Reports are valuable in pointing out what is negatively hitting your credit, but they use different criteria then a mortgage report. If you’d like to know what rates are or what your score looks like, give us a call.

4 Key Home Value Indicators

4 Key Home Value Indicators

As we move into Fall 2015, traditionally the slow time of the year, there’s been a lot of talk about where home prices are going. One thing most Real Estate professionals can agree upon is that the Sacramento Tri-County market is having another banner year. This has continued the winning streak with increasing values since 2011 for all three counties, Placer, El Dorado and Sacramento Counties.

If you’ve been wondering what’s happening with your home’s value, we’ve put together 4 Key Home Value Indicators to help you better understand what to look at to determine if your home’s value has increased.

New Building Activity is Up in Your Neighborhood – Supply follows demand. If you’re seeing building going on around you, it’s most likely that you’re in a high-demand area. With a considerably limited amount of inventory, prices has been strongest in high-demand areas. There is little chance of overbuilding at this point, so prices will continue to increase until supply meets demand.

Neighborhoods Near You Have Gotten Spendy! – If you’re questioning how the heck your neighbors just got that much for their home, take a look! Pay attention to what comparable homes are going for in the area. The main tool that appraisers use for valuing homes is the Substitution Method. If other’s homes have gone up, most likely yours has too. The best indicators are homes that are most like yours. Look at things such as square footage, functional age, updating and improvements, lot size, pool versus no pool, quality of construction, and number of rooms.

Inventory and Time on the Market:  Low inventory drives home values. Six months of inventory is considered a balanced market with less than 6 months a seller’s market. If the inventory of available homes is in short supply, then there will be high demand. The amount of time that a home will stay on the market is reduced and the price is driven higher. If you’ve ever seen a bidding war, potential buyers keep offering more for the property, this is usually due to high demand. If a home is priced right and in high demand, it can still sell within a matter of days with multiple offers.

Real Estate Agents are Bullish – Good agents typically have a solid grasp on the local market. They watch time on the market, inventory levels, what is happening with the neighborhood, and will usually have a good idea of what the good and bad points were of properties that sold. This in-depth knowledge make them a great resource to determine where you home value might be. Not all Realtors are professionals, but the good ones are valuable. Ask a trusted Realtor what they’re seeing. They should be able to give a good idea, and even run a Comparative Market Analysis, CMA, to give you a feel for what your home is worth.

We’ve included some additional links and resources for you to get a better sense of how the market’s performing in your neighborhood. If you think you might have equity, read our next blog post and watch the video to determine what to do with it.

Resources:

Look at an example CMA
Real Estate Market data from Trendgraphix

If you have any questions or need help in meeting a good Realtor, please feel free to call or email. We’d be happy to make an introduction.

When Can I Eliminate My Mortgage Insurance?

When Can I Eliminate My Mortgage Insurance?

The average home price in Sacramento has increased by approximately $100,000 over the past 5 years. At this time in 2011, the average median home price was going for $145,000, whereas September 2015, the same homes increased to an average of $245,000. Coupled with rates still remaining at historic lows, if you’ve been paying mortgage insurance, this may be a good time to re-examine if it is still necessary.

What is Mortgage Insurance?

Mortgage Insurance comes in many different forms, but in short, it is an insurance policy that homeowners pay to protect the lender against default when the buyer puts down less than 20% on their home. FHA Loans always have mortgage insurance regardless of whether the buyer puts down 20% or not. Below is a table that shows both Conventional Private Mortgage Insurance and FHA Mortgage Insurance information.

Private Mortgage Insurance, PMI (Conventional):

PMI is used for Fannie Mae, Freddie Mac, and other Non-Agency Loans. A private mortgage insurance company will provide a policy to protect the lender against defaultFHA Mortgage Insurance:
This is mortgage insurance required for an FHA Loan. Typically an FHA Loan has Up-Front Mortgage Insurance Premium as well as annual premium is paid monthly to the government.
How long do I have to pay Mortgage Insurance before it can be eliminated?

Each servicer and/ or mortgage insurance company has different standards for the minimum time that private mortgage insurance must stay on the loan. A general rule of thumb is 2 years before it can be removed as long as the property appraises at under 80% Loan to Value, the amount of loan divided by the purchase price. The borrower must have at least 20% equity in the property. Contact your lender and mortgage insurance company directly to determine what rules, Loan to Value, and timelines will be required in order to remove your private mortgage insurance.Prior to June 3, 2013 – For FHA Loans originated before June 3, 2013, MI must be paid for at least 5 years. When paid down at a normal amortizing payment, not paying additional principal, this usually takes approximately 11 years. A 15-year mortgage takes a little over 4 years to hit 78%.

June 3, 2013 and After – For FHA Loan originated June 3, 2013 or after, if the borrower put down 10% or more they must keep mortgage insurance for at least 11 years. If they put less than 10% down, mortgage insurance must be paid for the life of the loan.

How Do I Remove PMI and MI?

PMI Removal: – Conventional Loan

If you feel your conventional home loan is at 80% Loan to Value or less, meaning that you have more equity, and you’ve met the 2 year timeframe, you may be eligible to remove PMI.
How is the Loan to Value Determined for PMI?

There are three ways to meet the LTV threshold: the value has gone up, you paid the mortgage principal down, or a combination of both. The value is determined by getting a new appraisal through the loan servicing company. An easy way to determine if it makes sense to try is by looking at other homes in your neighborhood. Similar homes with recent sales should give you good indication as to how much yours might be worth. Below are steps to remove PMI:

Steps to Remove PMI:

First, look at your mortgage statement for the Loan Servicer’s phone number. Contact them and let them know that you are interested in removing PMI. The servicer should have a form that they’ll ask you to fill out and send back to them. Each lender has different rules, but generally if there is over 20% equity, the MI should be eliminated. To determine your home’s value and equity, the lender should set up an appraisal. The appraisal fee will differ depending on location and type of property. Let the appraiser know about the positive features of the home, additions, and renovations you’ve completed. These things all impact the market value of your home. The appraisal should take about a week to be completed. Once the appraisal comes back at value, the lender should let you know that you are good to move forward in PMI removal. They’ll most likely charge a fee to remove PMI, but it will be minimal compared to monthly PMI payments that you would make over the life of the loan. The process should take about 4-6 weeks depending on the lender, their responsiveness and their timeline.

MI Removal – FHA Loan:

If you have an FHA Loan, it’s a different story. If your waiting period has been met, and your home is 78% Loan to Value, the FHA mortgage insurance will be cancelled. How Is the Loan to Value Determined for FHA? The loan balance is based upon what the principal has been paid down to. The Value is based upon the original value used to get the loan. For example, if the house was purchased at $300,000 7 years ago and the balance has been paid down to $200,000 through early payments, the loan to value is 67% and it should be eligible to remove MI. ** Note: Value is not determined by a new appraisal, it’s based off last know value of the property. Usually it is the original value.

Steps to Remove MI:

Once your loan has met the waiting period and the Loan to Value is 78%, MI should cancel automatically. If it has not, and you’ve determined that you should be eligible, contact your servicer directly to request that the loan be audited. Finding Your Servicer Information: In order to locate the phone number for your servicer, look at the top right hand side of your bill. That is usually where their number is located. Let them know that you would like to have them review your MI as you feel that it may be eligible to be eliminated.

Mortgage Insurance is NOT Permanent:

Even if you have not met the parameters required to cancel mortgage insurance, the positive news is that it is not permanent. With rates low and lender guidelines continuing to expand, now may be a great time for you to replace your FHA Loan with a Conventional Loan without mortgage insurance.

How Long Must I Wait to Refinance My FHA Loan?

While FHA does not have a waiting period, most lenders require that you have your FHA loan for at least six payments. Otherwise, it is considered an early pay off and there may be charges to pay it off early.

What Happens if My Loan is Not Eligible for MI Cancellation?

Refinance: If you feel that you have at least 20% equity in your home, you can always remove mortgage insurance by refinancing your mortgage. There are many different programs available, and if there is enough equity, you can even do a cash-out refinance to pay off debt. If rates are better, you will be able to get the prevailing rate. This can be a good way to reduce the amount of interest you pay annually as well as reduce your monthly payment.

Review Your Scenario:

If you would like to see what the current rates are or get help determining if your home is eligible, give us a call. We’re happy to review your scenario and let you know what is available.

How Do I Use Equity from my House?

How Do I Use Equity from my House?

While gathering the data for our latest Real Estate Market Update for the Sacramento Tri-Valley area. We found some fantastic news about our local real estate trends. In the Sacramento Market, Home Values are UP. With this positive news came a realization that homeowners have begun experiencing something familiar but not seen for quite a while, Equity. One great benefit of home ownership, Equity is the difference between your home’s value and the amount owed. As values increase and homeowners pay down their mortgages, real estate equity positions continue to rise. This ownership stake ultimately results in long-term personal wealth, which drives the economy.

So, you’ve got equity. Now what can you do?

1. Home Improvements: When the market was down, many homeowners held off from fixing up their homes due to uncertainty of whether it would be worth it or not. With home prices increasing, many homeowners are opting to improving their homes rather than moving. Whether renovating the kitchen, completing deferred maintenance or adding a much needed room, a cash out refinance can provide the money needed to complete the work. The great news is that while this improvement creates a much nicer lifestyle, if done strategically it may significantly increase the value of your home as well.

2. Investing: With the Real Estate market continuing to improve, rents are going up as well. Many homeowners are eager to purchase rental property for all the benefits that it provides. In order to get the money for the down payment, taking cash out of your home can be an effective way to get the down payment together. Others are deciding to keep their existing homes, turning them into rentals and purchasing their long-term dream home. Equity can make this all possible, while providing a tax benefit and increasing cash-flow.

3. Debt Planning: If you have high interest debt such as student loans, car payments, tax liens, or credit cards, rolling them into the home loan can be a great advantage. While the monthly mortgage payment might go up a bit, it can be far off-set by eliminating unsecured debt. It is not uncommon to decrease your payments by $500 to $1,000 per month while getting a better tax write-off.

4. College Education: Many parents are in a quandary about how they are going to pay for high-priced college tuition and expenses. If you’ve been thinking about taking on a student loan, or a second mortgage, consider refinancing your primary mortgage instead. The rates are typically much better, you can take a Schedule A deduction on your taxes, and the payment is not typically as high. Payments can be spread over a longer period of time, which reduces the stress. This is a great time of life with the kids, you might as well enjoy it while you can.

We hope you’ve found these ideas of value. We’ve included some useful resources below in order to answer more of your questions. Please call or email us if we can help you evaluate your current situation.