The higher your credit score, the lower your mortgage rate will be.
What Is A Credit Score?
History has shown that the best way to predict a person’s behavior over the near-term future is to look at that person’s behavior in the recent past. It’s a concept similar to the First Rule of Physics — an object in motion tends to stay in motion.
We can apply this theory to consumer credit, too. A person who has recently paid his bills on-time should continue to pay his bills on-time in the near-future.
This is the basis of credit scoring; using your past to predict your future.
To mortgage lenders, your credit score represents your likelihood of making on-time mortgage payments for the next 90 days. “90 days” matters because, after 90 days without payments, a homeowner falls into default.
Higher credit scores correlate with lower default risk which explains why people with high credit scores tend to receive lower mortgage rates than people with low credit scores. This is true across all loan types, including conventional, jumbo, and FHA mortgages.
Like most else in finance, those with the lowest risks get to pay the lowest rates.
Lenders Use The FICO Scoring Model, Exclusively
There are three main credit bureaus in the United States. They are Equifax, Experian and TransUnion. Each offers a bevy of credit-scoring products, available for purchase on their respective websites. Prices range from “free” to several hundred dollars.
None, however, are particularly relevant in the home-buying process. This is because the nation’s mortgage lenders rely on a different credit model — the FICO model.
FICO is named for the Fair Isaac Corporation. It was “invented” in the 1950s and has become the mortgage industry standard for credit ratings. Today, FICO scores are omnipresent to the point that people generically refer to all credit scores as “FICO scores”.
FICO scores range from 300-850.
Credit Scores Change Mortgage Rates
Your FICO score has always influenced the mortgage rate for which you’re eligible. In 2008, though, it began to change your loan fees.
In response to major mortgage market losses, in April 2008, both Fannie Mae and Freddie Mac introduced something called Loan-Level Pricing Adjustments (LLPA). Loan-level pricing adjustments are “discount points” added to a mortgage rate, based on a specific borrower’s risk to the lender.
A discount point is a loan fee, paid at the time of closing. 1 discount point is equal to 1 percent of your loan size.
Example : A $300,000 mortgage that’s assessed 1 discount point will have $3,000 in extra fees due at closing.
Fannie Mae and Freddie Mac know that low credit scores correlate to high default rates so, like an insurance policy, they assigned the highest costs to the highest-risk borrowers.
Assuming a 20% downpayment, look at how discount points change based on credit score. Fees get massive for FICOs under 700.
•740+ FICO : There are no discount points required. This loan is “low risk”.
•720-739 FICO : 0.250 discount points are charged to the borrower, or $250 per $100,000 borrowed
•700-719 FICO : 0.750 discount points are charged to the borrower, or $750 per $100,000 borrowed
•680-699 FICO : 1.500 discount points are charged to the borrower, or $1,500 per $100,000 borrowed
•660-679 FICO : 2.500 discount points are charged to the borrower, or $2,500 per $100,000 borrowed
Now, not many new home buyers just have that kind of extra cash just laying around. Therefore, as an alternative to paying discount points with cash, many choose to “roll up” the fees into their respective mortgage rates. In general, 1.000 discount point can be “traded in” for a 0.250 increase to your mortgage rate.
Example : A consumer with a 680 FICO score is required to pay 1.500 discount points at closing, or can alternatively accept a mortgage rate increase of 0.375%.
This is why it’s important to keep your credit score high. There are real dollar costs for having scores under 740.
Courtesy of Dan Green of Waterstone Mortgage and Trulia.com
Tuesday, November 1, 2011
Tuesday, October 18, 2011
Time to Purchase a Larger Home???
We are seeing more and more households with 2-3 generations living together. Is this a new trend or a sign of the times? In the majority of the cases, it is an economic choice. We are finding middle age children that are no longer able to afford a care facility for their aging parent, so they all live together to save costs. In others, the 21-35 year old offspring is moving back in with mom and/or dad because he/she can no longer afford their own dwelling.
Nearly 1 in 3 adults — or 30 percent — live with their relatives, according to a new study. The cohabitation is known as “doubling up,” and it has risen to levels not seen since the Great Depression, according to a survey of 3,000 home owners and renters conducted by Hanley Wood.
Recent U.S. Census data also showed an increase in “doubling up” among household, particularly among young adults who are opting to move back with their parents. About 5.9 million Americans aged 25-34 lived with their parents in 2010, which is a 25 percent increase compared to the years immediately preceding the recession. Men were found to be nearly twice as likely as women to live with their parents.
Interested in a larger home? Call us at 623-694-0354 and we will help you find a home that is suitable for your entire family.
Nearly 1 in 3 adults — or 30 percent — live with their relatives, according to a new study. The cohabitation is known as “doubling up,” and it has risen to levels not seen since the Great Depression, according to a survey of 3,000 home owners and renters conducted by Hanley Wood.
Recent U.S. Census data also showed an increase in “doubling up” among household, particularly among young adults who are opting to move back with their parents. About 5.9 million Americans aged 25-34 lived with their parents in 2010, which is a 25 percent increase compared to the years immediately preceding the recession. Men were found to be nearly twice as likely as women to live with their parents.
Interested in a larger home? Call us at 623-694-0354 and we will help you find a home that is suitable for your entire family.
Thursday, October 6, 2011
Phoenix Area Home Sales are Smokin' Hot
Homes are selling like Hotcakes in the Phoenix area market. Now that there are many different companies specializing in bidding on properties on the courthouse steps, most auctioned (foreclosed) properties are receiving multiple bids. Because the prices are being driven up by investment buyers who are purchasing the properties with the intent to rent them, "flippers" are having a difficult time finding good properties to flip.
Yesterday I listed 2 properties in Avondale. Between the two properties we had 7 showings today and 5 showings for tomorrow. So far, we have received two offers for these properties and are expecting more.
To obtain a property, you often need to be one of the first buyers on the scene. Call us and we will "hook you up" to the MLS so you can be the first to know when your ideal property comes on the market.
Did you know that interest rates are at an all time low? If you are thinking of purchasing with a loan, the interest rate plays a bigger role in determining your monthly payment than the overall price of the home. Follow the lead of the investors, the time to strike is now....and you may need to strike (make offers) several times before obtaining your ultimate deal!
Yesterday I listed 2 properties in Avondale. Between the two properties we had 7 showings today and 5 showings for tomorrow. So far, we have received two offers for these properties and are expecting more.
To obtain a property, you often need to be one of the first buyers on the scene. Call us and we will "hook you up" to the MLS so you can be the first to know when your ideal property comes on the market.
Did you know that interest rates are at an all time low? If you are thinking of purchasing with a loan, the interest rate plays a bigger role in determining your monthly payment than the overall price of the home. Follow the lead of the investors, the time to strike is now....and you may need to strike (make offers) several times before obtaining your ultimate deal!
Monday, September 19, 2011
Back Up Offers Are the Best!
Just a quick note for Buyers who feel like they are always getting beat out by other buyers on Short Sales and Foreclosures. ASK TO BE A BACK UP BUYER!
80% of my short sales do not sell to the first buyer. Why? The process feels long to the first buyer. They get all excited about purchasing the house and then are required to wait two months to hear if the seller's lender accepted their offer. As the days drag on, the first buyer's interest usually begins to wain. They begin wondering about the other house down the street, etc. Often by the time the seller's lender gives their approval, the first buyer has found another home that they think can close faster. Consequently, it is the 2nd or 3rd Back Up Buyer that actually ends up purchasing the house.
So buyers, don't be sad when you are not selected as the first buyer. Strategize and get in the 2nd or 3rd position. Chances are, you will be the one who eventually owns the home!
80% of my short sales do not sell to the first buyer. Why? The process feels long to the first buyer. They get all excited about purchasing the house and then are required to wait two months to hear if the seller's lender accepted their offer. As the days drag on, the first buyer's interest usually begins to wain. They begin wondering about the other house down the street, etc. Often by the time the seller's lender gives their approval, the first buyer has found another home that they think can close faster. Consequently, it is the 2nd or 3rd Back Up Buyer that actually ends up purchasing the house.
So buyers, don't be sad when you are not selected as the first buyer. Strategize and get in the 2nd or 3rd position. Chances are, you will be the one who eventually owns the home!
Thursday, September 8, 2011
CONDOS IN PHOENIX AREA ARE CHEAP, CHEAP, CHEAP! BUT LEARN THE FACTS!
Condos in the Phoenix area are currently are very inexpensive. When you are looking for a condo or townhouse, be sure to check into the financing requirement for each type of property. There are some significant differences on what is available and the lending rules for each. Be prepared, not disappointed.
Financing Townhouse and Condo Purchases
If you are looking to buy a townhouse or condominium, it's important to note there are some significant differences between the two.
A condo is more of a legal definition than anything, referring to how the property is owned and managed.
If you were to purchase a condo, as opposed to a townhouse, you would own just the structure.
The land under it would be part of the large parcel on which all the units and the common areas sit.
In a townhouse, you would own the land under their home.
In a condo, you will pay into a blanket condo insurance policy that covers the unit itself.
This insurance, by the way, covers the structure but none of the contents of individual units.
In a townhouse, you would pay for your own individual policy.
Services such as landscaping and repaving of the common parking lots will often be handled by both types of associations.
However, condo associations will be more likely to manage minor items such as trim painting and snow removal and major maintenance such as roof replacement.
Roof replacement is more specific to condos in that they are more likely to share common roofs. Thus, it would be challenging to replace specific sections of one part versus the entire roof itself.
For this reason, condo association dues can be significantly higher than dues for a townhouse. When you are looking to purchase a condo, make absolutely sure that you understand how much these dues are.
Expect them to increase over time, as maintenance expenses rise.
A major challenge that condo buyers and potential condo buyers alike may run into nowadays is that the development may not be on a list approved by the Federal Housing Administration (FHA) or the Fannie Mae.
So in order for you to buy a condo, an association will have to open up its books and provide a set of rules and regulations to the for review. Many times associations charge for this service.
Other consideratiosn with condos is the delinquent association dues and the mix of owner occupied units vs. non owner. This can be determined by a report from the HOA. These numbers have to fall into certain parameters in or order to qualify for financing. Homepath condos do not have the same restrictions.
Many condos right now in the Phoenix area are dirt cheap, but a little more difficult to finance. If you want to get in on these great investment opportunities, call Mike Drefs at 623-693-1505. He can help guide you thru the process and send you a list of available properties.
Financing Townhouse and Condo Purchases
If you are looking to buy a townhouse or condominium, it's important to note there are some significant differences between the two.
A condo is more of a legal definition than anything, referring to how the property is owned and managed.
If you were to purchase a condo, as opposed to a townhouse, you would own just the structure.
The land under it would be part of the large parcel on which all the units and the common areas sit.
In a townhouse, you would own the land under their home.
In a condo, you will pay into a blanket condo insurance policy that covers the unit itself.
This insurance, by the way, covers the structure but none of the contents of individual units.
In a townhouse, you would pay for your own individual policy.
Services such as landscaping and repaving of the common parking lots will often be handled by both types of associations.
However, condo associations will be more likely to manage minor items such as trim painting and snow removal and major maintenance such as roof replacement.
Roof replacement is more specific to condos in that they are more likely to share common roofs. Thus, it would be challenging to replace specific sections of one part versus the entire roof itself.
For this reason, condo association dues can be significantly higher than dues for a townhouse. When you are looking to purchase a condo, make absolutely sure that you understand how much these dues are.
Expect them to increase over time, as maintenance expenses rise.
A major challenge that condo buyers and potential condo buyers alike may run into nowadays is that the development may not be on a list approved by the Federal Housing Administration (FHA) or the Fannie Mae.
So in order for you to buy a condo, an association will have to open up its books and provide a set of rules and regulations to the for review. Many times associations charge for this service.
Other consideratiosn with condos is the delinquent association dues and the mix of owner occupied units vs. non owner. This can be determined by a report from the HOA. These numbers have to fall into certain parameters in or order to qualify for financing. Homepath condos do not have the same restrictions.
Many condos right now in the Phoenix area are dirt cheap, but a little more difficult to finance. If you want to get in on these great investment opportunities, call Mike Drefs at 623-693-1505. He can help guide you thru the process and send you a list of available properties.
Friday, August 19, 2011
A Trillion in Perspective.............
I heard an interesting analogy this week from Eldon Ploetz, an AZ RE instructor and a former bank executive.
If we were to stack $1 bills on top of each other at the rate of 1 per second and worked at it 24 hours per day, it would take us 11.57 days to stack $1 million.
How long would it take to stack a One Billion dollars? 11,574 days or 31.71 YEARS.
How long would it take to stack a Trillion Dollars? 31,710 years.
And,the National Deficit is reported to be 14.5 trillion dollars. That would mean we would need to stack $1 bill, 24 hours per day for 459,795 YEARS. That is a VERY long time. Obviously, our descendants will be dealing with this debt for years.
If we were to stack $1 bills on top of each other at the rate of 1 per second and worked at it 24 hours per day, it would take us 11.57 days to stack $1 million.
How long would it take to stack a One Billion dollars? 11,574 days or 31.71 YEARS.
How long would it take to stack a Trillion Dollars? 31,710 years.
And,the National Deficit is reported to be 14.5 trillion dollars. That would mean we would need to stack $1 bill, 24 hours per day for 459,795 YEARS. That is a VERY long time. Obviously, our descendants will be dealing with this debt for years.
Tuesday, August 9, 2011
How the S&P Ratings Affect the Housing Market
Per the Wall Street Journal, "When all is said and done, borrower psychology—and not mortgage rates—could face the bulk of any housing-market damage that stems from the Standard & Poor’s rating downgrades.
S&P downgraded the credit ratings of Fannie Mae and Freddie Mac on Monday morning to AA+ from AAA. That, of course, followed Friday’s rating cut for the United States.
The downgrades by themselves don’t appear to have done much to roil mortgage markets. The 10-year Treasury note, to which mortgage rates are closely tied, has fallen to a record low, which is good for mortgage rates."
Lawrence Yun, the chief economist for the National Association of Realtors says, “Even if [mortgage] rates were to rise because of the downgrade, this fact is less important in light of the current overly stringent underwriting standards and the general lack of consumer confidence about the economy. A 30-year fixed rate rising from 4.3% to 4.6% will not change the housing game that much, but a return to normal underwriting standards and a boost to consumer confidence will be the true game changer.”
What does this mean for you? Mortgage rates are Low, Low, Low so a house purchased now will have a low monthly payment. While others are crying over their stock values, take advantage and purchase a home at the lowest historical mortgage rate. Be the new Warren Buffett and buy when terms are favorable. You will have outsmarted most of your neighbors!
S&P downgraded the credit ratings of Fannie Mae and Freddie Mac on Monday morning to AA+ from AAA. That, of course, followed Friday’s rating cut for the United States.
The downgrades by themselves don’t appear to have done much to roil mortgage markets. The 10-year Treasury note, to which mortgage rates are closely tied, has fallen to a record low, which is good for mortgage rates."
Lawrence Yun, the chief economist for the National Association of Realtors says, “Even if [mortgage] rates were to rise because of the downgrade, this fact is less important in light of the current overly stringent underwriting standards and the general lack of consumer confidence about the economy. A 30-year fixed rate rising from 4.3% to 4.6% will not change the housing game that much, but a return to normal underwriting standards and a boost to consumer confidence will be the true game changer.”
What does this mean for you? Mortgage rates are Low, Low, Low so a house purchased now will have a low monthly payment. While others are crying over their stock values, take advantage and purchase a home at the lowest historical mortgage rate. Be the new Warren Buffett and buy when terms are favorable. You will have outsmarted most of your neighbors!
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