Monthly Archives: September 2011

What You DON’T know about credit can hurt you when buying a home

Part I in a three part series – CREDIT WOES

Those who are venturing into the waters of homeownership now are very smart. This is definitely the time to wade in.  But before you do, this is the first in a four part series on THINGS YOU NEED TO KNOW before starting to look for a home. 

My motto is if you want something – make it happen.   So first, credit can be an obstacle when buying a home – but only if you let it.  Anything can be fixed.  Here are some tips and tools to get you started. 

A credit counselor once told me that the FICO score formula is a secret treasure..  No one really knows the formula or the secret would be out.  But, there are those that have mastered how it works.  Little things effect it greatly.  Here are some dos and don’ts. 

Credit cards are the gold deblunes of FICO score.  You can’t have the treasure without them.  Remember two things.  You can carry a balance each month, but keep the total balance under 50% of what you owe are as close to it.  DON’T just pay the minimum balance or you will be dooming your credit and end up paying more in interest and premiums for everything you buy. 

Also check the credit limit of all your credit cards and try not to exceed 30% spent of the credit limit at any time.  

And a little caveat – watch the number of credit cards you have.  FICO may score you lower because you have too much available credit.  Save 10% today on your purchase is not worth paying more all the time. 

Inquiries.  When go try to get a loan, they pull your credit.  One hard inquiry every 60 days or so is fine.  But numerous inquiries can hurt. When getting a loan, it is better to get a soft inquiry.  Shopping loans can affect your score when buying a car or getting another loan can temporarily hurt your credit score. 

The biggest thing – don’t miss payments!  Medical bills and installment loans can hit your credit score 50-100 points for just one missed payment.  Send whatever you can and make it up right away.   Collections can derail your credit faster than anything.

But it can rebound – anything can be fixed.  First, correct your bad habits.  Get a better accounting system.  To get a new home, you want to be at least 600.  The better the score, the better the interest rate and the easier it will be to be loaned.

Quick raises in score can be done with good trade lines to correct bad trade lines.  You want someone reporting positive accounts to the credit bureaus.  Prepaid credit cards can do that very quickly.  Just pay them off completely.  Small installment loans that you pay on time can do that.  If you NEED to buy something like furniture or electronics, that may be better than paying huge interest on credit cards.  That can help, but don’t buy anything you don’t need just to improve credit.

Credit counseling can also help you know what to pay off to make the best impact on delinquent accounts.  However, make sure they give you a free consultation and understand exactly what they can do for you.  There is a fee, so ensure you understand all the fees.  There is no timetable for sure, so don’t expect one, but you also shouldn’t be paying month after month with no progress. 

Pull your credit report and make sure it is accurate.  Everything stays on your report – it is like this is your life of credit, you want to see paid or zero balance. 

You can your credit report at www.annualcreditreport.com for free from all credit agencies, but ensure you don’t agree to remove any of your rights – check the terms and conditions.  You can get it other places, but don’t sign up for a monthly services unless you want to.  And ensure you get a reputable one and you understand the terms and conditions.

If there are inaccuracies, this is where the credit counselors can be really helpful.  They know the ins and outs of getting inaccuracies removed.  The credit agencies don’t want that to be easy for you.

What is a SHORT SALE and Do I Care?

Good question.  I am asked this probably once a day from buyers.  Here are the basics…

 A short sale happens when the owner has a hardship of some kind that reduces their income and can no longer afford the payments.  They are losing the home, but the bank gives them an opportunity to sell it for less than they owe.  The bank will sometimes excuse the difference (deficiency) or sometimes they will reserve the price to collect it sometime in the future. 

 What a short sale means to a buyer is a couple of things – some good and some bad. 

 Time is NOT of the Essence.  Short sales are anything but short. When a short sale is put on the market, it may be occupied, it may not.  It may need work, it may not.  It may be functional, it may not.  But the one thing it will do is it will likely take between 3-6 months for you to close on a short sale.  It may take a month or more just to hear if you get are in competition for the home or even if you have a chance.  So, if you don’t have that kind of time or patience – move on.  There are a lot of foreclosure properties out there that will take 3 months or less to close with less uncertainty.

 Why does it take so long?  Anyone’s guess.  I have heard everything from lack of resources at the banks to the banks are waiting for a better deal. 

 There is a timeclock on these.  If it doesn’t get an offer once on the market 4-6 months under the short sale, the bank may just foreclose.  Then the property could be off the market for up to 2 years while in court.  There are some programs out there to reduce the time for short sale to 3 months with less notice wait, but make no mistake.  The bank is in complete control of what is going on here.   They decide what programs they will subscribe to, what they will take, etc.  The seller has no authority to make decisions.  They legally can sign the contract – that’s about it. 

 Good News.  The good news is that short sales are often deep discounted to sell.  So, they can offer a good deal on a home that could be fully functional and require less work…maybe… than a foreclosure.  Keep that in mind when making an offer.  Check with your Realtor to see what the value really is. Some banks start at market and then make cuts.  A low-ball offer will only add more time to your sentence with the bank and will usually not get you the house anyway. 

 Do I want a Short Sale?  Only you can decide if you want to look at short sales.  You can put in an offer and it may be accepted by the seller, subject to bank acceptance.  But the bank can take any other offer at any other time for any reason – not just price, could also be type of financing, etc.  Price is usually king though.  It is completely up to them.  Again, unless you are not in a crunch and do not have patience, you may want to look at other properties first.  BUT… if you have the time and patience, you can wait it out and maybe get a good deal.  And you can – and should – keep looking for homes.  Something else can come up and until the bank accepts your offer, you can always withdraw your offer with no penalties. 

 What Can I Do?  There are some things that may improve your chances, but keep in mind, every bank is different.  First for sure use a professional – and in my opinion – not the listing agent.  The listing agent can represent the seller and buyer, in the state ofIllinois (among very few) but where is their loyalty?  To the seller.  It is a briar patch for the agent, the buyer and the seller.  Get your own advocate and your own representation.  And make sure you use someone who has some knowledge or experience with short sales.  There are certain questions about the bank, the loan(s), the owner and the process that can give an experienced or even a knowledgeable broker some indication of what the timetable could be like. 

 How you put in your offer and how sure your offer is to a banker can also affect your delay and your acceptance.  The least contingencies (mortgage and inspection), the closest to list price, the most earnest money, the firmest bank approval of the loan (not just a preapproval is better), the more money down you are putting on the home help.  In the bank’s inbox of offers, the path of least resistance and most likehood to succeed will be pulled off the pile first. 

For more information on short sales, contact RE Marketing Consultants at 888-788-9544 or suzanne@remarketingconsultants.com  and find out if short sales are good for you.   If it works for you – it could be a great opportunity.