A good credit score is important for more reasons than just obtaining new credit. These days, it can factor into everything from landing a new job to getting the best deal on your insurance policies. It’s more important than ever to avoid late payments on your mortgage!
A 100 point drop for one late mortgage payment? It’s true. A single 30-day-late mortgage payment can cause your score to drop by as much as a hundred points. Credit scoring algorithms vary based on many factors, and in some instances, the damage may be even greater and last for years.
The costs accumulate. At the time, a single missed payment will cost you only a late fee, but the expense really adds up on your next loan or missed opportunity. Low credit scores typically mean a higher rate and cost. Higher rates can mean hundreds of thousands of dollars of extra expense over the life of a loan.
Missed payments are usually unplanned. Usually, events beyond our control lead to late payments, such as an accident, illness, job loss or family issue. At other times, carelessness or a hectic life may result in a forgotten payment.
What can you do?
- Plan for the unexpected. Maintain an emergency cash reserve account equal to at least 3 months of living expenses or more.
- Automate. If you’re prone to forgetting or don’t have a scheduled time to sit down and pay bills, set up auto payments through your checking account or put a perpetual reminder on your calendar.
Little other than time will decrease the negative impact of a late payment, so prevention is the one sure remedy. If you don’t already have a good system in place to assure timely payments and are not sure what’s best, reach out anytime. We’ll be happy to help set up a plan that’s right for you.
With vigilant focus on the source of funds for closing mortgage loans, it’s important to know what’s acceptable. Here’s what you need to know and what you’ll need to provide:
Mattress Money or any “cash on hand” is not acceptable. All funds must be “seasoned,” which means your money needs to be in an institutional account (bank, credit union, brokerage, etc.). You will need to provide all pages of up to three months of consecutive statements for proof these funds are yours.
Gift Funds are OK with a signed “gift letter” (a form we provide) and evidence of the donor’s ability (a statement showing sufficient funds). Later, we’ll need copies of the check, deposit slip and account statement to show the transfer into your account.
Assets Being Sold, such as a car, boat, collectible or anything of value you are selling, require proof of ownership (such as a registration or title) and evidence of value (blue book value or appraisal). After the sale, provide copies of the receipt and the check and deposit slip showing the transfer of funds to your account.
Other Examples include loans from employers or against retirement savings, grants, inheritances, proceeds of sale from other property, loan paybacks and winnings. Be prepared to show the source of funds, evidence of transfer into your account and any supporting documentation of value, terms, service provided, etc.
TIP: If you have time and want to minimize paperwork, consolidate all funds into one account at least two or three months prior to closing. Save any and all evidence of transfers and deposits and keep activity to a minimum.
Never hesitate to ask questions when you’re unsure about what will work and what will not.
PMI is Private Mortgage Insurance.
PMI allows you to finance a home with less than a 20% down payment. For an extra monthly cost to you, PMI provides default insurance to the lender.
Thinking of saving more to avoid PMI? Accumulating what can be tens or even hundreds of thousands of dollars for a down payment is a challenge for even the most industrious savers. Delaying a purchase while rates and prices rise may be more costly than PMI in the long run.
PMI allows you to buy what you want now vs. what could end up being far less of a home after you’ve managed to save a larger down payment later. Reach out today and see if you might be ready to buy with a little help from PMI.
We’re often asked if a home inspection is required. The answer is usually no, but that doesn’t mean you shouldn’t have one done. You’re making a large investment. Having a professional inspector alert you to potential problems can save money and surprises in the long run.
There are other reasons to have a home inspection, too. If the appraiser sees an apparent deficiency in the condition of the home, an underwriter may ask to see the related section of the home inspection (sometimes called the engineer’s report). In this instance, having secured an inspection up front can save you valuable time. Additionally, identifying problems early in the process may mean the seller will remedy them prior to sale.
Purchasing a home with the assurance of good condition—or at the least the knowledge of any potential issues—makes for more accurate pricing and cost expectations. Both of these are clearly to your benefit. By comparison, the cost of an inspection is small.
Reach out when you have questions or need referrals to qualified professionals.
Although past price activity is now referred to as a “bubble,” one reason prices rose as they did is because the cost of financing a progressively more expensive home was staying relatively flat.
The graph shows the change in per capita income and the monthly payment for financing a median priced home at the prevailing 30-year fixed interest rate with a 20% down payment over the last 50 years or so. Notice that incomes doubled several times over, while monthly home payments did not. Homes became progressively more affordable despite rising home prices.
Interest rates allowed this relationship to play out. Rates spiked around 1980. As they fell over the next few decades, payments barely increased. As a percentage of individual income, we’ve recently reached a 50-year low in the cost of financing a home.
In many areas, prices have begun to rise again, but uncertainty over the economy is preventing the rapidly rising prices more characteristic of a recovery. Once greater confidence returns, typical supply and demand forces coupled with rising rates will turn the tables. Acting before the inevitable process occurs is where the “smart money” and smart buyers will be found.
Give me a call today to talk about the options available to you.
Still Writing Checks to the Landlord?
Home loan payments are now often less than rent payments!
If you don’t intend to stay in your home long, need extra mobility or are unsure about your employment prospects, renting probably makes good sense for you. But if you’re planning to stick around, owning may prove to be more rewarding. Here are five good reasons:
- Rates are near historic lows, and prices are still well below the past peaks. This unusual combination places the real cost of purchasing a home near a 50-year low.
- Buying builds equity. On most mortgage loans, you pay down the principal balance with each payment. This typically starts at about $100 per month for every $100,000 of loan balance and increases each month through the entire life of the loan. To make a fair comparison, be sure to subtract principal paid from a home loan payment vs. the cost of renting the same property.
- Home values rise over time. Increases are not guaranteed; however, if we use the last 50 years as a guide, values have typically risen at a pace above inflation.
- Homeownership often brings tax benefits. Deductions for home mortgage interest and real estate taxes save many homeowners thousands every year. Others still find taking the standard deduction more beneficial. Always consult your tax pro for advice.
- It’s more than just the money. Families become rooted in a neighborhood, school district and community. Homeowners have the freedom to choose paint colors and make modifications. Pets are welcomed. Intangibles like these often formulate the most valuable returns.
Housing is a precious commodity that we all need every day. It’s your choice to rent or to own, yet buying a home for yourself usually beats buying one for your landlord.
If you want to learn more or find out what you might be able to afford, reach out. We’re always happy to help. Christina Daniels Absolute Mortgage 360-753-3064.
Are you wondering if no credit is just as bad as poor credit?
It can be. You need to have at least a few established credit accounts to develop a score, and you need a score for most loan programs.
It’s great to keep your spending under control by only using cash, but if you ultimately need to finance the purchase of a home, the sooner you solidify a good payment history the better. Without using credit, there’s nothing for the bureaus to use as a basis for their scoring algorithms.
A good mix makes for the best start. For example, get a bank overdraft credit line, a credit card and an installment loan, such as an auto or personal loan.
Reach out today, and we’ll be happy to answer any questions you may have. Christina Daniels Absolute Mortgage 360-753-3064.
If you’re currently behind on your bills, your credit score will be stuck until you catch up. The first thing to do is call the institution and create a plan that keeps them from reporting you to credit bureaus as late. They want to get paid so they’ll likely offering some useful methods for keeping you current.
Once you catch up, stay caught up.
By now your plan should put you on a sustainable track to be able to pay those bills on time from here forward. Stick to the plan that you and the institution created for you and slowly but surely you’ll start to see your credit tick upward.
We can also help with any questions you might have. Christina Daniels Absolute Mortgage Olympia 360-753-3064
Here are Mortgage DOs and DON’Ts to follow during your loan process.
Keep All Records in Good Order.
- Availability – Keep your financial records close at hand in case updates are requested.
- Income – Be aware that underwriters typically verify your income and tax documents through your employer(s), CPA, and/or IRS tax transcripts. Hold onto new paystubs as received.
- Assets – Continue saving incoming account statements. Keep all numbered pages of each statement. Ex. 8 of 8.
- Gifts – If you’re receiving any gift money from relatives, they’ll need to sign a gift letter (we’ll provide) and an account statement evidencing the source, which must be “seasoned” funds.
- Current Residence – If you’re renting, continue paying your rent on time and save proof of payment. If you’re selling your current residence, be prepared to show your HUD-1 Settlement Statement. If you’ll be renting your home, you may need to show sufficient equity, a lease and receipt of the first month’s rent and security deposit.
Keep your credit shining. Continue making payments on time. Your credit report may be pulled again, and any negative change to your score could cause you to lose your approval and your home.
Understand that things have changed. Underwriters require more documentation than in the past. Even if requests seem silly, intrusive or unnecessary, please remember that if they didn’t need it, they wouldn’t ask.
Apply for new credit. Changes in credit can cause delays, change the terms of your financing or even prevent closing. If you must open a new account (or even borrow against retirement funds), please consult with me first.
Change jobs during the process. Probationary periods, career or even status changes (such as from a salaried to a commissioned position, leave of absence or new bonus structure) can be subject to very strict rules.
Make undocumented deposits. Primarily large but sometimes even small deposits must be sourced unless they are identified. Make copies of checks and deposit slips. Keep your deposits separate and small. Avoid depositing cash.
Wait to liquidate funds from stock or retirement accounts. If you need to sell investments, do it now and document the transaction. Don’t take the risk that the market could move against you leaving you short of funds to close.
Ever be afraid to ask questions. If you’re uncertain about what you need or what you should do, I’m here to help you through the process, even long before you intend to buy.
We are always here to help. Absolute Mortgage Olympia, WA Christina Daniels 360-753-3064.
Credit scores can be confusing, frustrating and, let’s face it, somewhat of a mystery. Let me help demystify the process for you a bit. To start, FICO stands for Fair Isaac Corporation, the group that created and computes this score. You have 3 credit scores, from Equifax, Trans Union and Experian, and they range from 350 – 850. Here’s how they are affected and by how much:
Payment History – 35%
Current Debt – 30%
Age of Current Debt – 15%
Your Last Application for Credit – 10%
Types of Credit You Use – 10%
So paying your bills on time and not maxing out your revolving debt – credit cards and such – is key to protecting your score.
For more details, go to www.myfico.com or call me anytime. Christina Daniels Absolute Mortgage Olympia, WA