Understanding the Factors That Impact Your Credit Score

Understanding the Factors That Impact Your Credit ScoreMost consumers believe if they pay their bills on time, they need not worry about their credit score. Oftentimes, it is a rude awakening when they apply for a mortgage loan, car loan, or any revolving credit to learn they are not going to get the lowest rates available due to their credit score. This is because paying bills on time only accounts for 35 percent of your credit score. The remaining 65 percent is spread out among other factors that impact your credit score.

Credit Usage and Impact on Score

Nearly one-third, 30 percent, of your credit score is based on how much of your available credit you are using. For example, if you have combined credit available of $100,000 and you use $90,000, you will suffer a decline in your credit score. Those consumers who have similar credit lines and are using $9,000 will get a slight bump in their score.

New Credit vs. Old Credit

We seldom think about how long we have held a line of credit open. However, some consumers “exchange” credit lines for other credit lines due to special offers made by credit card companies. This is not necessarily a good idea since 15 percent of your credit score is determined by the age of your credit accounts. The longer you have had an account, the better in most cases. The calculation will take all open credit accounts, take the amount of time they have been open and get an “average age”. If you have six accounts which have been open less than a year and six that have been open five years, the newer accounts will count against you in this case.

Mixing up Credit Lines

A consumer who has only a mortgage and a single credit score will take a modest hit on their credit score versus a consumer who has multiple credit cards, a mortgage, and an auto loan. The types of credit you have will account for 10 percent of your credit score and the more varied your open credit lines, the better. While it is inadvisable to open new credit lines simply to show a variety of types, having installment loans, retail credit cards, and traditional credit cards is a good idea.

New Lines of Credit Opened

One danger many consumers are unaware of is suddenly opening new lines of credit. For example, a new homeowner may open a new account with a home improvement store, a general retail store, and a new credit card to help them furnish and repair their new home. This could be a red flag since the credit lines are new, and there is no established history on the mortgage, or the new credit lines. Since this factor accounts for 10 percent of your credit score, you could suffer a temporary decline in your credit score.

Consumers should be aware of the factors which impact their credit score, and also be aware of the factors that do not impact their scores. Understanding your credit score may be the most important tool you have when buying a home, or refinancing your current mortgage.

Please contact us to discuss how your credit score may be impacting your ability to finance your next home purchase.

5 Ways Millennial Buyers Can Snag Their Dream Home In This Sellers Market

5 Ways Millennial Buyers Can Snag Their Dream Home In This Sellers MarketAccording to the 2017 Home Buyer and Seller Generational Trends Report, Millennials bought 34% of the homes sold; the largest of any generation last year.

Millennials looking to buy their first or second home need to ready themselves for a surprisingly competitive market. Lack of supply causes attractive homes to garner multiple offers in just a few hours!

What can a Millennial buyer do to appeal to sellers and be the one who ends up with the home? Here are 5 ways they can snag their dream home in this seller’s market.

Get Pre-Approved

Figuring out what a home buyer can afford is a crucial step and no different for these savy Millenial home buyers. Sellers like to avoid nasty surprises. Being pre-approved shows the seller that the homebuyer is serious and financially able to purchase their home.

Meeting with a mortgage originator and getting pre-approved is how it’s done. This professional will pull credit history and look at current financial infomation to determine precisely how much of a mortgage is affordable. The pre-approval can then be used as part of their offer letter.

Be Decisive

A hot real estate market is no time for cold feet. Millennials should proactively create a list of must-haves and be ready with an offer when they find a home that meets their requirements.

Taking too long to mull over whether they like the house, the neighborhood, or the price can result in a dream house being sold right out from under them.

Get Real

Millennials should research pricing in the neighborhoods they like, and lean on their real estate agent for helpful guidance. Low-balling an offer is not likely to be received well in this competitive market. Making a fair, reasonable offer close to, or even above, the asking price is the best course of action to land the home they want.

Show Personality

If sellers feel like they know the buyer, they are more likely to choose them over a faceless offer. Include a personal letter with the offer. Go into detail about why the house is appealing. Add personal details about what the Millennial buyer wants to do in the house like raise children, plant a garden, or enjoy baking in the kitchen.

If all buyers are equal, a heartfelt letter just might tip the scales.

Agree to the Sellers Timetable

Some sellers prefer unloading their house fast. Others may want to wait to move until their kids are out of school or the new home they are building is ready.

Millennial buyers may need to dig to get this information but it can be used to their advantage. Being flexible might just set them up to be the best choice for the seller.

While challenging, it’s not impossible for Millennials to end up with the house of their dreams. With a bit of planning, decisiveness, flexibility, and a preapproval from their trusted mortgage professional, Millenials can make homeownership a reality in the very near future!

 

 

A Mortgage Pre-Approval Can Help You In Your Home Purchase Negotiations

A Mortgage Pre-Approval Can Help You In Your Home Purchase NegotiationsA mortgage pre-qualification is an initial estimate of what type and size of mortgage a borrower could get. It is limited, though, because it’s only based on what the borrower tells the lender, which might not be the same as what the lender finds out when it goes through a full process of analyzing the borrower and his credit.

The Initial Loan Pre-Qualification

To get pre-qualified, a borrower starts by finding a lender. Typically, he will give the lender basic information on his ability to borrow. This includes his income, how much money he has in the bank, his current payments and an estimate of his credit worthiness.

The lender takes the pre-qualification information that he gets and compares it to the loan programs of which he is aware. For instance, if he knows that a borrower doesn’t have a lot to put down, but the borrower mentions that he’s active-duty military, the mortgage lender might offer a VA loan as an option.

Based on the programs he sees and the information the mortgage professional gets from the borrower, he will tell the borrower what kind of mortgage to expect.Typically, this gives the borrower a sense of the likely interest rate and of the loan amount he can borrow. Generally, this is enough to let a borrower start looking at real estate listings with a realistic sense of what will be affordable.

The Power of A Mortgage Pre-Approval

When it comes time to start writing offers, though, a mortgage pre-qualification might not be enough. A pre-qualification is missing one important factor — underwriting the borrower’s income and credit.

When a borrower goes beyond a pre-qualification to get a mortgage pre-approval, he submits his credit for the lender to check. That way, his qualifications get confirmed and the lender can issue a more binding letter that not only lets him know what he can afford but also lets him show a seller that he is truly qualified to get a loan.

With that letter, his offer may be viewed as stronger and he can be more likely to get the ability to buy the house he wants.  Contact us today to discuss your options before looking at homes.  It may very likely give you a bit more purchasing leverage.

What Is A Mortgage Pre-Approval?

What Is A Mortgage Pre-Approval?When you are purchasing a home, your broker may recommend you obtain a mortgage pre-approval before you find the home of your dreams.

There are some benefits to being pre-approved before you find a home, but oftentimes, people confuse pre-qualifications with pre-approvals.

So the question many buyers have is what exactly is a mortgage pre-approval?

In a nutshell, it’s when the lender provides you (the buyer) with a letter stating that your mortgage will be granted up to a specific dollar amount.

What Do I Need For Pre-Approval?

In order to obtain a pre-approval for your home purchase, you will have to provide your lender all of the same information you would need to show for qualifying for a mortgage.

This means providing tax returns, bank statements and other documents that prove your net worth, how much you have saved for your down payment and your current obligations.

What Conditions Are Attached To A Pre-Approval?

Generally speaking, a pre-approval does have some caveats attached to it. Typically, you can expect to see some of the following clauses in a pre-approval letter:

  • Interest Rate Changes – a pre-approval is done based on current interest rates. When rates increase, your borrowing power may decrease.
  • Property Passes Inspection – your lender will require the property you ultimately purchase to come in with a proper appraisal and meet all inspection requirements.
  • Credit Check Requirements – regardless of whether it’s been a week or six months since you were pre-approved, your lender will require a new credit report. Changes in your credit report could negate the pre-approval.
  • Changes In Jobs/Assets – after a pre-approval is received, a change in your employment status or any assets may result in the pre-approval becoming worthless.

Getting pre-approved for a home mortgage may allow you more negotiation power with sellers and may help streamline the entire loan process. However, keep in mind there are still things that may have a negative impact on actually getting the loan.

It is important to make sure you keep in contact with the lender, especially if interest rates increase or your employment status changes after you are pre-approved.

Call us today to get pre-approved.