Category: Credit Score

4 Reasons Why You’re Not Too Young to Buy a Home

If you’re in your 20s and still paying off student loans, buying a house might seem like an unreasonable or even crazy idea. But with rents on the rise, more and more young people are trading in their leases for mortgage agreements. In fact, Millennials aged 18 to 34 have accounted for the largest group of homebuyers for the past three years. Here are four reasons why you should join them.

 

Owning Can Grow Your Savings

You don’t have to hand over all the money for your new home at once. If you’re looking to buy a $140,000 home, a 15% down payment comes out to $21,000. That’s a fair chunk of change, and it might not feel like savings. But over the long run, your mortgage payments could be turn out to be much cheaper than your monthly rent. Plus, with a fixed-rate mortgage, you can count on stability. Your rent won’t go up, because you won’t be paying rent.

 

You’ll Gain Equity

Even if your mortgage payments aren’t lower than your rent, at least you’re getting something back: equity in your home. With each payment you make, you own a little more of your home — which is money that will come back to you if you ever sell. You can also borrow against your home equity, which can come in handy if you need to finance a large purchase.

 

You’re Not Trapped

One advantage of renting is that you can change your plans relatively quickly and painlessly. Bad breakup? Sudden career change? Renters only have to wait out their lease — or break it — to make a change. To many habitual renters, ownership looks like a ball-and-chain. But it doesn’t have to be. You can always sell — and if you sell for a profit after three years, you can avoid paying a capital gains tax. No, it’s not a month-to-month lease, but if you know you’ll be living in your current area for over three years, ownership can be a smart (and flexible) decision.

 

You Don’t Have Kids (Probably)

Millennials are waiting longer to get married than any other generation in history, and similarly, many are waiting even longer to have children. In terms of home buying, this is a very good thing. When you have kids, your ability to build up your savings account is impeded — those babies aren’t cheap. Having already made the large purchase, and having already started reaping the monthly savings benefits, can be a financial advantage if and when you do decide to grow your family.

 

 

Sam Radbil is a contributing member of the marketing and communications team at ABODO, an online apartment marketplace. ABODO apartments was founded in 2013 and is headquartered in Madison, Wisconsin.

 

 

There are some people who have not purchased homes because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent-free, you are paying a mortgage – either yours or your landlord’s. As Entrepreneur Magazine, a premier source for small business, explained this month in their article, “12 Practical Steps to Getting Rich”:

While renting on a temporary basis isn’t terrible, you should most certainly own the roof over your head if you’re serious about your finances. It won’t make you rich overnight, but by renting, you’re paying someone else’s mortgage. In effect, you’re making someone else rich.”

Christina Boyle, Senior Vice President and head of the Single-Family Sales & Relationship Management organization at Freddie Mac,explains another benefit of securing a mortgage vs. paying rent:

“With a 30-year fixed rate mortgage, you’ll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years – unlike rents which will continue to rise over the next three decades.”

As an owner, your mortgage payment is a form of ‘forced savings’ which allows you to build equity in your home that you can tap into later in life. As a renter, you guarantee the landlord is the person with that equity. Interest rates are still at historic lows, making it one of the best times to secure a mortgage and make a move into your dream home. Freddie Mac’s latest report shows that rates across the country were at 4.23% last week.

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, now may be the time to buy.

Although a single late payment can lower your credit score—since payment history is 35 percent of your FICO credit score—how much it affects your score will depend on a lot of different factors. For example, making a payment one day late on a low-limit department store credit card may not be as detrimental to your credit as being 60 days overdue on your mortgage. Some of the factors that will determine the impact on your score include the type of account that it is, how late the payment is, if you’ve had other late payments, and what your credit score currently is. The important thing is to make the payment and get your account back in good standing, which you’ve done. Being late is one thing, but not making the payment at all is another thing altogether. Generally, if the late payment is your only late payment in the last several years, you shouldn’t worry too much about it. Also, keep in mind that a lender may choose to overlook a single late payment if the rest of your credit is very good. In the end, it’s not always about your credit score, but rather your creditworthiness in a lender’s eyes.

 

© Left Field Media

If you’re a normal millennial, you’ve heard terms like “refinancing” and “taxable annuities” and “lender pre-approval” thrown around in adult conversation at networking events and breakroom lunches, and for the most part you nod your head and stare into your GMO-free organic vegan salad to avoid saying something you don’t really know anything about. My dear aspiring homeowner, today we’ll learn about what getting pre-approved for a mortgage loan means, and you’ll be one-step closer to being a grown-up!

 

Let’s go back to basics. Buying a house is usually the largest purchase you’ll ever make. Most of us don’t have $200,000 lying around in bank accounts or under mattresses, and unless you have a wealthy Victorian benefactor or recently deceased prosperous great-aunt, you have to borrow the money from a bank or credit union when you purchase a home. Banks, as you know, won’t just give anyone on the street a pile of cash. They have carefully vetted risk models to rate your loan-worthy status based on credit history, credit score, income, assetss–basically whatever they can think of to judge you by so that they can entrust you with their money and gauge the probability of getting their money back from you.

 

Before you start shopping for your home, you should go to a bank, credit union, or online lender and submit an application for pre-approval. Typically, they’ll ask for proof of income (pay stubs, two years’ of W-2s, two federal tax returns, and two months of bank statements). They’ll also pull your credit report, verify employment, and make copies of your driver’s license and social security card. But it sounds so serious and scary, you say! Don’t be worried—this is standard procedure for loan pre-approval, and every homebuyer does this. You should only be worried if the lender ask for your phone number and if you’d like to go salsa dancing on Friday.

 

You can discuss loan options and budgeting, interest rates, and most importantly, you’ll figure out the maximum you can borrow. This will help you determine what your house-shopping budget is, which will direct your house-hunting efforts. Sorry McMansion, but a two-bedroom townhome it is! Once you’ve submitted your application and all necessary documents for verification, the lender will provide you with a letter showing how much they’ve approved for lending and the basic terms. Remember, preapproval isn’t necessarily a loan commitment, but definitely speeds up the underwriting and loan approval process once you’ve submitted an accepted offer on your dream house.

 

Why even go through the hassle of pre-approval if you have do it later for a loan anyway? Simply, it saves you time in the long run. Most owners and their agents don’t accept offers unless you’re preapproved, and it’s not just because they like to be judgy. For you, it’s an important step in finding an accurate and affordable price range for targeting your search. For sellers and agents, it’s a clear sign that you’re a credible buyer. Having a pre-approval letter can make the difference between two similar offers. It will definitely label you as someone who knows what terms like “air pocket stock” and “marquee asset” mean in conversation. You know, grown-up talk.

 

If, for some reason, you can’t get pre-approved for a loan right away, there are several steps you can take to improve your credit score and help bump you into a lower-risk category for lenders, which we will learn about in a different post. Remember, in the house hunting game, it pays to be prepared—not only for your dream house, but for any water cooler conversations involving grownups.

TransUnion recently released the results of a new study titled The Bubble, the Burst and Now – What Happened to the Consumer? The study revealed that 1.5 million homeowners that were negatively impacted by the housing crisis could re-enter the housing market in the next three years.

TransUnion defined “negatively impacted” as…

“…those who were 60+ days past due on a mortgage loan, lost their mortgage through foreclosure, short sale or other non-satisfactory closure, or had a mortgage loan modification between the Bubble and Burst.”

Other interesting findings in the study:

  • During the mortgage bubble in 2006, 78 million consumers, or 43% of credit-active consumers in the U.S., had a mortgage
  • More than 8% of these consumers were “impacted”
  • 5 Million consumers will again be eligible for a mortgage in the next four years

Here are the numbers of consumers who will meet mortgage guidelines over the next four years:

Boomerang Buyers Re-Entering The Market | Keeping Current Matters

Bottom Line

If you are a family that experienced the impact of the last housing crisis, now may be the right time to again buy your own home.

Thank you to Keeping Current Matters for this article.

Historically low mortgage interest rates have been a lifeline for many town first time homebuyers in recent years, keeping home ownership within reach for many who wouldn’t have otherwise been able to make the leap. For them, and for all the other than first time area homebuyers, the fact that home values have continued to rise has been an added boon.

But, as just about every mortgage industry expert will tell you, the gig is almost up for those rock bottom rates. Yet the question for many first time homebuyers remains: is it time to buy or not?

It’s a good time to take a hard look a few of the known facts—

According to web giant Zillow, as of Q1 2015, potential home buyers should expect to spend about 15% of their income on a mortgage for an average home in the U.S. When you compare this with the historical averages, it makes today’s rates temptingly low: the typical percentage has been closer to 21%. In terms of dollars spent monthly, that’s a big (and terrific) difference!

At the same time, the historical average has a typical renter shelling out 24% of income. Today, that’s closer to 30%…making first time homeownership that much more inviting.

Taken together, Zillow’s new calculations definitely appear to make finding a home to buy the more affordable option. On the other hand, it’s also true that a number of factors work against first time homebuyers—in Naperville and nationwide. College debt, for one, is far more of an obstacle than it used to be.  And the other side of those all-time high monthly rents in many places are making it that much harder for would-be first time homebuyers to save for a down payment.  But with the widespread phenomenon of growth in rents outpacing growth in home values, the rental affordability problem isn’t likely to improve any time soon. With mortgage rates likely to be on the increase as early as this fall, the long term outlook may not grow rosier as time passes. The implied takeaway: strike now while the iron is hot!

Whether this real estate foray is your first or tenth, if you’ve been considering taking advantage of this summer’s Naperville home buying bargains, contact me today for an introduction to a qualified mortgage broker—and to discuss whether this might not just be the perfect time to start your search!

People often ask whether they should buy a home now or wait. Recently released data suggests that waiting may not make sense as prices seem to again be on the rise. Let’s take a look at some of the data and commentary on the subject:

Ed Stansfield, chief property economist at Capital Economics:
“The current tightness of supply conditions would normally be consistent with much faster price growth. The continued steady growth in home sales that we expect this year will only add to this upward pressure on prices.”

Case Shiller Home Price Index
“The S&P/Case-Shiller U.S. National Home Price Index, covering all nine U.S. census divisions, recorded a 4.1% annual gain in March 2015 … with a 0.8% increase for the month.”

Anand Nallathambi, CEO of CoreLogic
“All signs are pointing toward continued price appreciation throughout 2015… Tight inventories, job growth and the impact of demographics and household formation are pushing price levels in many states toward record levels.”

Danielle Hale, Director of Housing Statistics at NAR
“Even without further acceleration, the pace of price growth remains too high. Strong buyer demand and low inventories coupled with relatively low new construction are helping to push prices up, keeping the housing market tipped in favor of sellers.”

FHFA Principal Economist Andrew Leventis
“The first quarter saw strong and widespread home price growth throughout most of the country. Home prices are now, on average, roughly 20 percent above where they were three years ago. This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of overall inflation observed during that same time period.”

Bottom Line

If you are planning on buying a home in the near future, waiting probably doesn’t make sense from a purely pricing standpoint.

One-Question Exam: A Credit Report True/False Quiz

Here is a one-question True or False exam that every future first-time home buyer should take:
True or False:
One sure way to build a strong credit report is to pay your bills on time.
(Answer: False)
Particularly for a first-time Naperville area home buyer, being able to present a strong credit report can make the difference between being able to afford a quality home that satisfies all your ‘must haves’—or one you just sort of settle for.
It’s about how much you can comfortably afford. The interest rate you will be offered is directly related to your bill-paying history, and a percentage point (or more) can make a big difference in your monthly budget. Because lending institutions charge more or less based upon the degree of risk they believe a loan carries, the stronger your credit report, the “more house” your monthly payment will cover.
Of course, since a string of unbroken records of punctual payments is what lenders look for, you might think that the answer to my one-question True or False exam would be an unqualified ‘True’—but not so fast. There’s a small catch is in the unbroken records that they look for. The word records.
Just paying your bills on time doesn’t build a strong credit report unless there are records of it—and for area first-timers who have been paying rent for years, all those prompt payments could well be missing in action. The surprising reason lies in the nature of our whole credit reporting system.
It’s voluntary.
As the L.A. Times spotlighted last summer, landlords, phone and cable companies, “and many other creditors don’t report your payments” to the big three credit bureaus (Equifax, Experian and TransUnion). They aren’t required to do so. If you’re planning on becoming one of our west suburban first-time home buyers, that might be a big deal—especially since rent payments usually make up the lion’s share of what you buy on credit. But you can do something about it!
Recognizing the difficulty some first timers were having in qualifying for home loans precisely because of such missing data, about five years ago, the credit bureaus teamed up with services like RentTrack that enable tenants to pay their rents online—and get credit for them. TransUnion and Experian also introduced services like “ResidentCredit” and “RentBureau” that encourage property managers to report rent payments for their tenants. That makes sense for landlords, too, because when rent payments are recorded, it enables them to better gauge the creditworthiness of their next batch of applicants.
Making sure your payments are being recorded will put today’s renters ahead of the game when they eventually decide they’re ready for the next step: home ownership. It simplifies the answer to that One-Question True or False credit report question greatly…to a simple “True”!