In order to make the best decision, let’s look at where real estate values are headed. They say celebrity opinions make headlines, but let’s skip the sensationalism and see what a panel of 100 economists, investment & marketing strategists, and real estate experts had to say.
SURVEY RESULTS: Where Are Home Prices Headed?
The average annual appreciation will be 3.6% over the next five years. This means the cumulative appreciation will be 19.4% by 2019.
Now consider this: a home valued at $100,000 today will be worth $119,400 by 2019. You can buy a $100,000 home with a down payment of $3,000 to $3,500 (conventional or FHA loan).
So in approximately four years, you turn $3,000 into $19,400 real estate value.
For a $200,000 home, double that.
For a $500,000 home, multiply that by five.
Do I need to explain why I am a fan of buying your own home? Not to mention, the price of rent keeps going up. And, renters don’t qualify for the mortgage tax deduction.
Even the experts making the most bearish experts predicted a cumulative appreciation of 11.8% by 2019.
If you need to raise your credit score to qualify for a home loan, stop procrastinating and take action now.
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First, TRID requires new waiting periods in the loan process that are predicted to turn 30-day closings into 45 days. This is especially true if your lender is a big slow-moving bank, or if you don’t submit absolutely all of your documentation into your loan officer right at the start, or if your closing attorney/escrow agent isn’t onboard with the new pace.
Second, TRID will strip away your ability to change your mind regarding loan size, the loan program, or interest rate-lender credit, because doing so will trigger new waiting periods that could push you out of contract. TRID will also force you to lock in your interest rate sooner than with the present system.
Third, you probably don’t want to be the October 3rd guinea pig. Or the October 4th guinea pig. My advice is to do what you can to negotiate a mutually signed contract and get it in to your loan officer before the close of business Friday, October 2nd.
Heads-Up! An application is not what you submitted for your pre-approval. According to TRID, an application means there is a specific property address included.
I have to wonder how busy October 2 will be! Speaking for myself, I will work until midnight if needed–and I will do so with the biggest smile you ever saw.
They say there is a silver lining to every cloud. One good thing about TRID is that it has forced lenders to hire more compliance officers (the watchdogs who make sure the lender doesn’t accidentally overstep a guideline, miss a signature on a form, or fail to adhere to a waiting period).
I saw a sign that reads, “TRID: Keeping America employed one compliance officer at a time.”
*TRID stands for Truth-in-Lending Act-Real Estate Settlement Procedures Act Integrated Disclosure. (Credit goes to the Feds for coming up with that mouthful.)
State licensed in CA, WA
The Federal Reserve Board announced today that they will not raise interest rates at this time, as previously predicted.
The change in direction (to leave rates alone) was due to concerns with the economic growth and inflation.
“Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term,” the statement said.
For more details, see here.
Here are four things you should know about how credit cards affect your FICO score:
1) If you carry a balance that is over 50 percent of the limit, you will lose credit points.
To remedy, either call your creditor and ask to have the limit raised, or spread out your spending over an additional card. I am assuming, of course, that you are not overspending for your income and budget. That is another topic altogether!
2) If you pay off your balance in full each month, you will be rewarded with additional credit points.
The credit system recognizes the proper use of credit and adds points to your FICO score when you don’t carry a balance from month-to-month. Moreover, you don’t waste your money paying interest that is non-tax deductible.
3) If your total use of credit is below 50 percent of your total available credit, you will gain points.*
Not only does the system look at your individual credit card balance-to-limit ratio, but it also looks at the total of all your available credit cards. So if you are maxing out all your cards, your score will receive a double whammy in point subtraction.
4) Any payment that is 30 days late will dock your score. If you’re 60 days late, it gets worse, and ditto for 90 days.
If you are 31 days late for the first time and call your creditor immediately, they might give you grace and not report you as late, especially if you are a long-time, perfect-paying customer.
If your one-off late payment has already reported, then you should take steps to get that removed from your credit report. The law gives you the right to dispute the late payment, and many creditors are happy to remove the late payment when you send the right type of letter through the good old-fashioned USPS mail system. Why? Because it is a good business practice for them, and it is within their legal right to do so. As the creditor, they own your credit information.
When you understand how the system works, you are in control of your own credit score.
* If you reduce the 50% credit usage to 30%, you gain even more points.
Having a score of 740+ puts you in the top tier for a conventional mortgage loan. If your score is 800 or higher, you gain respect, bragging rights, and may qualify for slightly better terms, depending on the lender and loan program.
Learn what the credit professionals know that you don’t about restoring credit and your good name. I received an email from a gentleman who read this book and has been following the steps for do-it-yourself credit repair. “Three negative accounts gone, three to go,” he wrote. Yes, credit repair does work when it is done properly.
Unless you’re as cute as a cat or have just won the lottery and plan to pay cash for everything for the rest of your life, you need excellent credit and a high FICO score in order to obtain the best financing, the cheapest insurance premiums, and save money.
Beginning October 3, 2015, the Loan Estimate (LE) replaces the GFE, per federal law.
There will be no more HUD-1 Settlement Statement. That is being replaced by the Closing Disclosure (CD).
Why? The Consumer Finance Protection Bureau has determined that the GFE they designed in 2010 is confusing borrowers. It has taken the committee more than four years to come up with a new form — but finally it is ready to roll out. The LE and CD will be mandatory for all mortgage lenders, including banks, brokers, direct lenders, and credit unions.
Along with the improved LE and CD, come new regulations (commonly called TRID).
Important rules to be aware of are the following:
- A lender may not close your loan until you have had at least seven days to review the Loan Estimate.
- If you do not respond with an Intent to Proceed within 10 days, the lender has the right to change their lender fees.
- You are not allowed to sign your final loan documents until you have had at least three days to review the Closing Disclosure.
- You do not have the right to waive these waiting periods unless there is a genuine emergency. The fact that your rate lock is expiring or that the seller refuses to extend the closing date because he has a better back-up offer is not considered an emergency, according to the feds.
- If you change your loan program or loan amount, you are required to start over with the waiting period. Ditto if your credit score or credit quality changes.
- You will need to tell your loan officer whether or not you shopped for the title company and settlement company (escrow or attorney), because it impacts the tolerance for their fee accuracy.
If you’d like to read the condensed “Reader’s Digest” version of the new law, the CFPB has released 91 pages here.
Stay tuned for more information about the ever-changing world of getting a mortgage. I will post updated information as we get closer to October 3rd.
The first house I bought as a young, single woman was a smelly little house with stained floors, dingy walls, and a stove covered in black baked-on gunk. Part of the roof was rotten, and the refrigerator was disgusting. It was ugly for sure, but it was all I could afford with my pre-approval of $80,000. The best thing it had going for it was the charming white picket fence.
Before you feel sorry for me, let me state that this turned out to be one of the best real estate purchases I ever made. Here’s why.
Ten Things I Learned From My Ugly House
- After ripping up the dog-stained carpet, I discovered the hardwood floors were permanently damaged. There went my vision of having beautiful hardwoods as I couldn’t afford to replace them. It was much cheaper to install a nice wall-to-wall carpet.
- Fresh paint in a light neutral color completely brightened up the home. My daughter chose pale pink for her bedroom, and my son wanted green. Letting them choose their bedroom colors gave them a sense of personal ownership in the new house.
- It made more sense to have the disgusting appliances hauled to the dump than to try to renovate them. New appliances made me feel like I had a new kitchen even though the cabinets and counter tops were the same.
- I splurged on pretty light switch covers and I could not believe how many compliments I got on those little things.
- Before my loan could close, the lender required the seller to replace the rotten roof. (It showed up on the appraisal report.) This delayed the closing of my loan, but it was worth the inconvenience. (Thanks again, Mom, for letting me crash at your place for a month after I had to be out of my apartment.)
- I chose an FHA Adjustable Rate Mortgage. This turned out to be a very smart choice, because I saved a significant amount of money on my payments for the three years I was there. Because this wasn’t my dream home, I knew I wouldn’t live there a long time, so taking a 30-year fixed rate would not have made sense. Why pay more interest than needed?
- Because I got a lower interest rate with the ARM, my payments paid down the principal balance faster. Thus, when I sold the house three years later, my loan pay-off was smaller and I netted more profit than I would have if I’d taken the fixed rate mortgage.
- It doesn’t take a dream house to be happy. I discovered a great deal of satisfaction by cleaning up that little house. When my friends came to visit, they exclaimed, “What a cute house!” And it was.
- If the bedroom window won’t open on a hot summer night, don’t give it a little smack with your hand. I tried that and my hand went right through the glass, which cut my wrist pretty badly. It took a bath towel to stop the bleeding. Fortunately, 9-1-1 sent out a handsome fireman to wrap me up and take me in for stitches.
- A smelly, little house can bring in a nice profit after you clean it up and live there for three years. I sold the house for $125,000. After subtracting the money I put into the house and subtracting the payments I’d made, I calculated that I earned over $300 per month just for living there.
How’s that for a happy ending?
“Sure, why not?” we said.
Because it had two floors, high ceilings, and a small patio and lawn outside the glass sliders, it felt more like a house than an apartment. For our price range, it looked like the best deal. We lived there for five years, and then sold for a profit.
Here are seven things I learned from that experience:
1) The HOA management is an important factor. When we moved in, the 16 units were self-managed and had very low HOA dues. By the time we’d moved out, a management company had been set up and dues were more than double.
2) Your neighbors will affect your life more, because they are close by. Fortunately, we had wonderful (quiet, friendly, non-invasive) neighbors. But others have not been so fortunate, so it is a good idea to do a little door knocking before you decide on a unit.
3) Look at the HOA budget. You want to see that there is money in reserves so if something like a roof repair or exterior paint is needed, you won’t be hit with a large assessment.
4) City condo living can be fun. From our condo, we loved walking to downtown shops, the movie theater, library, an array of restaurants, as well as the park on the shore of Lake Washington.
5) Parking could be an issue. Each unit had a single garage plus one outdoor space, so it worked out. When my husband purchased his ’66 GTO, we needed more garage space. So think ahead. Some condos charge extra for covered parking.
6) No yard maintenance is great! As busy professionals, not having a lawn to mow, leaves to rake, or weeding to do was a big plus. The HOA took care of weekly maintenance. However, I still enjoyed planting flowers in large pots by the front and back doors.
7) Small pets are allowed in most condominiums, but find out ahead what the rules are, especially if you love a large animal. For us, our kitty got along just fine.
We have many happy memories from our condo days. The profit we made helped us move into a single family residence when we were ready for more space and a private yard.
One mistake people sometimes make is closing off their credit cards so that they have no open accounts.
With no open credit card accounts and all your auto loans, student loans, and other installment debt paid, your credit score will disappear. This is because the credit bureaus have no way of rating your credit when you have no credit!
I believe in living debt-free. However, it is imperative that a person keep two to three credit cards open and active in order to qualify for the best mortgage at the best price. Otherwise, you could find yourself being forced to take a higher priced mortgage — or pay all cash for your house.
For a conventional loan, lenders want to see three trade line accounts. A closed installment loan (auto, etc.) is acceptable if it is not more than three years old.
For an FHA loan, lenders want to see two trade line accounts.
You do not need to carry a balance from month to month. In fact, it is better for your credit score if you pay off the balance in full each month and avoid paying interest. You can use the credit card minimally once a quarter to keep it active and accruing credit score points.
I urge you to pass on this information to folks who have dug themselves out of debt and then make the error of closing down all their credit cards. People get so sick of being in debt, that when they are finally free of that burden, they shut down all their accounts. THIS IS A BIG MISTAKE! Unless you are financially independent and will be paying cash for your houses, you need some open credit and a credit score to get a good mortgage.
If you need to dispute a late payment, collection, charge-off, or other negative item on your credit report, you can’t afford to make a mistake. If you do, you could inadvertently “cement” that negative into your report for a very long time.
This is why Mr. Pat Fasano, who I consider to be the #1 credit expert in the world, told me, “If they have already sent in a dispute for their bad credit, then most often, I won’t take them on as a client.”
The work Mr. Fasano, the owner and founder of Correct Credit Company, Inc. does is nothing short of phenomenal. But he cannot work his magic if the consumer has already muddied the waters by disputing online or sending in a statement that shoots himself or herself in the foot.
“Please remove this late payment because…
… I was sick and in the hospital,
… I was traveling and my mother was supposed to pay the bill, but she didn’t,
… I never got the bill,
… and so on…
THESE WILL NOT WORK! They will only serve to muddy the waters and make the negative item stick like glue.
Look at this legal verbiage about how creditors are to handle credit disputes:
If your investigation determines the dispute was incomplete, frivolous, or that the dispute has been investigated before, you must notify the consumer not later than five business days after making that determination.
WARNING: Do not dash off a quick online dispute or letter without knowing how to properly execute a legal dispute that will work!
If you would like the contact information for Correct Credit Company, Inc., send me an email through my page here. (A Google search will turn up the voice mail, not the phone number for a live person.)
If you want to save yourself the price of hiring a professional, then you have the right to conduct the credit repair work yourself. Just make certain you do it properly or correctly. All the instructions are clearly laid out in Repair Your Credit Like the Pros.
Either way, remember that reporting negative information that is incomplete, out-of-date, false, or unverified is illegal. The credit bureaus must adhere to the Fair and Accurate Credit Reporting Act by removing all such negative items.
After my colleague’s client signed his final mortgage documents for his refinance, he eagerly went out and bought a brand new truck. Little did he know he had just stopped his loan from closing. He thought his loan was a done deal because he’d signed the final papers, but that is not the way it works.
Signing is not closing (in most states).
For a refinance, closing is four days after signing, because federal law requires you to have a three-day right to cancel before the lender is allowed to fund and close the loan.
For a purchase loan, closing is normally two days after signing, because several things have to happen to complete the process. Your original loan documents are sent back to the lender. Someone in the funding department reviews all papers to make sure they are complete. Typically, there will be items for the escrow officer and/or processor and loan officer to do. In addition, the Deed is sent to the local county recorder’s office to receive a recording number. Only then are funds disbursed and is your loan closed.
In the West, if you used a small independent escrow agent rather than a title and escrow company that handles both functions, you are in a sub-escrow situation which can delay your closing by an additional day.
Disastrous Mistakes Borrowers Made
After signing for a refinance, a home owner dashed into work and told off her mean boss and quit. When the lender’s processor picked up the phone (as they typically do) to verify employment, she learned the borrower no longer had an income, and the loan was suddenly denied.
One eager home buyer was so excited, she went out and purchased all new appliances from Sears. As with “Mr. Eager” above, this put her debt-to-income ratio over the acceptable percentage, and her loan was promptly denied. She had to return all the appliances and provide a receipt–or she would have lost her house!
“Can They Do That?”
People think that once the contract is signed, they are set. But that is not true for mortgages. The lender can refuse to fund and close your loan if anything changes about your employment, credit, or overall risk factor.
So be wise and make no changes during your loan process–not even after you sign final papers. Have patience. Put your new loan as your priority. There will be plenty of time to get a truck, new appliances, or switch jobs later.