When you are in the market for your first home, a more spacious home, or a retirement it-is-time-for fun-place, you need numbers. Unless you are paying cash, which requires big numbers, your first concern is a down payment. However, be aware that some mortgage companies are waiving the down payment under certain circumstances. The numbers on your credit score are paramount. If you yearn for an attractive mortgage package or any mortgage at all, your score is as valuable as the Dead Sea Scrolls or the Hope Diamond.

Life happens. While life is happening sometimes circumstances occur that adversely affect one’s credit score. No matter the reason for this disastrous dip in numbers, it has nasty consequences when you are contemplating the purchase of a new home. Do not fear. There are steps you can take to remedy this undesirable circumstance. Let’s look at what Edward and Natalie Davidson did when they were faced with a dismal credit score and the urgent need for a larger home.

Edward struggled through college (working two jobs). Natalie ran between her job as a receptionist and her classes. They were just able to pay their bills and eat. Since their jobs were part-time, neither Edward nor Natalie had health insurance when they discovered, to their delight and dismay, they were going to be parents in eight short months. The hospital bill, college fees and books, and other necessities of the 21st century left their meager budget dangerously in the red.

The Plan

Edward graduated from college and was employed as an account with a small firm. Natalie was completing her senior year in chemistry. The struggling, yet indomitable, Davidsons were living in a tiny apartment with scant elbow room. Yet, they dreamed of a charming little home on a quiet tree shaded, children friendly street. The Davidsons developed a concise and determined plan to improve their credit and buy “their” house within two years.

10 Tips. To-Do List.

  • 1. The most widely used index for home loans are FICO scores, these scores are obtained from the three national credit bureaus – Equifax, Experian and TransUnion. Therefore, we must determine our FICO scores and work to increase them if necessary. According to the experts we should review these scores one to three times a year. We should also look for errors that lower our scores. These types of errors are not uncommon.
  • 2. We must pay all bills on time–no exceptions–period. This is especially true of debt reported to the credit bureaus. Timely rent payments are imperative.
  • 3. Balances on current debts, with special emphasis on credit cards, should be reduced as soon as humanly possible.
  • 4. If necessary consult a credit counselor.
  • 5. Avoid with great vigor, any new inquires of our credit with the credit bureaus. Don’t open unneeded new accounts.
  • 6. If a new account is necessary, it should be paid on-time or early. Good payment records are very valuable. A guaranteed credit card may be a place to start.
  • 7. When possible set up automatic payments (though our on-line checking). Automatic payments cannot be overlooked or forgotten.
  • 8. Closing an account does not help our score. It is better to keep a reasonable balance and establish a good paying record. Again, when possible use automatic payments.
  • 9. Open a savings account and contribute to it regularly (automatic contributions are good).
  • 10. Continue to build a long term employment history.

The Future

The Edwards were off to a rough start in their financial life, nonetheless, they have a plan and they are adhering to it with tenacity a bulldog would envy. A negative financial history is definitely not the end of the world, though it can certainly be frustrating. Credit can be rebuilt in a relatively short period of time; some experts say approximately three years.

Your Plan

If you would like to improve your credit score to buy your first home, make a plan and begin implementation today. It won’t be long before you enjoy a welcome increase in your numbers. Sometimes taking out a guaranteed issue credit cards can be an advantageous beginning. The credit card company should report to the major credit bureaus on a regular basis if they are to help you re-establish good credit. If you would like to begin your journey to admirable credit and believe a credit card will meet your needs, apply on-line with complete confidence. Sit back, relax and compare the advantages and disadvantages of various cards. Good luck on your journey!

Understanding the Housing Market and Mortgage

Splitting the atom and discovering the DNA double helix were effortless accomplishments when compared to buying a house with a mortgage. If you have not purchased a house recently (or ever) you may not be aware of the confusion and chaos waiting for you when you find that perfect “for-sale” sign. Yes, the mortgage process requires a clever lawyer, a highly experienced accountant and a dedicated banking professional. Actually, it requires several banking professionals and a Gypsy. In addition, you will need a friendly, knowledgeable insurance agent and, of course, a real estate agent. Your insurance agent may be in person or on-line. In fact, you will probably begin your house hunt on-line.

A Buyers Market

Remember, all this began when someone of sound mind (?), said, “We need a new house.” That is a innocuous statement which does not, in the beginning, strike terrible into your heart. Finding the “right” house is no longer an easy task unless you are in one of the housing areas experiencing a housing glut. In which case, you have a buyers’ market. Under those pleasant circumstances, you are obliged to look at numerous homes until you finally don’t care which one you buy. Anything with a roof will suffice. Your most ardent wish is to never see another “for sale” sign as long as you may live. The good news is, when shopping in a buyers’ market you can purchase more house for your dollar.

A Sellers Market

If you are in a tight housing market, such as mine in mid South Carolina, you have fewer choices and will pay higher prices. In which case, you simply want something you can afford also, with a roof.

Both Markets

After you have made your best deal with the seller it is time to pursue the elusive affordable mortgage. Recently, many mortgage companies have ridden off into the sunset, because buyers defaulted on their mortgages. There are various and sundry reasons for defaulting on a mortgage. One is the not-well-thought-out “ARM” which meant buyers would be hit with a large increase in their monthly payment after a specified number of years. Though it saved the borrower at inception, and certainly looked very attractive on paper, time to pay the piper arrived and many buyers were unable to pay the increased payment. The New York Times reports the following dismal foreclosure news:

The Mortgage Bankers Association reported Thursday that the number of loans past due or in foreclosure jumped to 7.9 percent, from 7.3 percent at the end of September and 6.1 percent in December 2006. Before the third quarter, the rate had never risen past 7 percent since the survey began in 1979. (March 6, 2008)

Lesson #1, be very cautious

There are many reasons for the record high foreclosure rates. This is important to you because it affects the housing market in many areas of the country. California and Florida were particularly hard hit. Also, this unique financial climate makes it more difficult to find an enviable mortgages. A dearth of lenders means fewer lenders will be competing for your business.

Do Your Mortgage Homework

Yes, the number of mortgage companies has decreased sharply. However, the survivors are doing business, especially after the Federal Reserve lowered the prime interest rate. Never fear, you can still find, after due diligence, an attractive loan package. The financial equivalent of the Titanic sinking prompted financial institutions to indulge in best practices soul searching. Due to this rethinking of lending practices, the loan process will probably involve more red tape and your credit must be at least “good.”

If you find that your credit is not exactly faultless, perhaps you will want to increase your credit score before you apply for a mortgage. Establishing credit or re-establishing good credit [ Read: Credit, the Good the Bad and the Ugly ] requires a plan for success, determination and time. You can do it!

Comparing Mortgage Packages

Interest rates

Naturally, interest rates are important in determining which bank has the optimal plan for you. You may not find a great deal of deviation in interest rates. However, thoroughly scrutinize the small print. You may not receive an exact interest rate when you apply. Your mortgage interest rate will depend on the prime rate and other factors at the time your loan closes. Some lenders will give you the option to lock it in prior to closing. This is a gamble. If you opt to lock in your rate (also called rate lock or rate commitment), and the interest rates decrease you will still be bound to the higher rate. Of course, you benefit if the interest rates increase.

Closing Costs

Learn all you can about closing costs. Closing costs are breathtakingly expensive. If you are not prepared for them you may need mouth to mouth resuscitation when faced with this substantial bill at closing. These costs will vary from lender to lender. The typical closing costs include broker or lender charges, prepaid costs, title insurance and taxes, and third-party fees. A mortgage lender should be able to give you an estimate of costs. Remember, they call them estimates for a reason.

What Determines Home Insurance Price?

The following factors will have an influence on the home insurance price you will have to pay when purchasing.

The Condition of the Home

Insurers will take account of general wear and tear on your home when setting a premium. They will inspect the premises to check significant items including the condition of the roof, porches, decks, and the integrity of the electrical wiring system. As new homes tend to be in better condition than older homes some insurers will offer up to a 15% discount if your home is newly or recently built.

The Construction of the Home

Certain types of homes are less expensive to insure because of the materials used to build them. For example, a home of brick or concrete construction is usually more damage resistant than a timber frame house.

Safety Factors

Many insurers also offer discounts of approximately 5% if your home incorporates safety features such as burglar alarm systems, deadbolts, window locks, smoke detectors, and sprinklers. You may also receive a discount in home insurance price if your home is in close proximity to a fire department station house.

If There is a Smoker in the Home

Because smoking in the home greatly increases the risk of fire, some insurers will offer a discount of approximately 2-5 % if no one in the home smoke.

Is the Home in a High-Risk Area

Flood and earthquake damage is not covered by standard home insurance policies. Special supplemental catastrophe policies that cover these events are available but can be quite costly. If you are currently covered against catastrophes through a government plan research coverage through a private insurer. It may actually be cheaper.

Type and Amount of Home Insurance Coverage Needed

Homeowner’s insurance typically covers damage to your home or loss of contents. Some packages also provide further benefits such as personal liability coverage to protect against claims in the event someone is injured on your property. Make sure the policy you buy meets your requirements and always read the fine print for exclusions and other conditions. Prices and protection can vary significantly between packages that appear to be very similar. You need to get the balance right.

Your Affordable Deductible

The deductible is the amount that you the policyholder must pay before your insurance company starts paying out against any claim. The higher your deductible, the lower your home insurance premiums. By raising the deductible, you can save up to 50% of the cost of your homeowner’s insurance. Remember though, if for example, your deductible is $500, any loss or damage to your property that falls within that sum is yours alone to pay and not just one time. If you suffer a loss through damage of $300 in January and then another of $450 in May they would generally both fall within the deductible, your insurer will have nothing to pay.

Loyalty to Your Insurance Company

Insurers will often reduce their rates if you buy more than one type of coverage from them; for example both auto and homeowner’s insurance, or if you stay with them over a substantial period of time.

Is There a Retiree Living in the Home?

If you are over the age of 55 and retired, check with your insurer to see if you qualify for a discount. Most insurance companies offer discounts to retirees because they tend to spend more time at home which means it is more likely they will be present and able to deal quickly with emergencies such as a fire. Being at home in the daytime also means they are less likely to be burgled, and they generally have more time to maintain their homes. Some insurance companies will offer discounts to home insurance prices of up to 10 percent to seniors who qualify.

Group Discounts

You can often obtain better home insurance rates if you join a group plan through an employer, alumni association, veterans group or other organisation. Check to see if any affiliate body of which you might be a member of has a group plan with an insurance provider.