Helpful Tips

Helpful Tips

Mortgage Tips

Improving a Credit Score

Lenders analyze your credit scores to determine whether or not to approve a loan, including a home mortgage. Creditors are more likely to lend you the money, if they feel like you will repay it in a timely manner. Credit scores help lenders determine how much risk you are. The higher your score, the less risk they think you will be. Your credit score is the three-digit number that compares your credit performance to that of similar consumers. Scores range from 300 to 850. I hope you can use the following tips to improve your score.

Check your own Credit Report

You are entitled to a copy of your credit report, including a list of everyone who has requested your report within the past year. It is best to review your reports from all three credit bureaus for accuracy once a year as well as several months before applying for a loan. To obtain a copy of your report, visit www.annualcreditreport.com or call 1-877-322-8228. It is important to request reports from Equifax, Experian, and TransUnion because each bureau may have different information depending on which companies have reported to them on your accounts. Mortgage lenders often look at all three of the bureaus' FICO scores and take the middle score to assess your eligibility.

Correct Mistakes

Your credit score is only as good as what shows up in your credit report. If there are any inaccuracies, it is important to dispute them by enclosing supporting documents in a letter to the bureau.

Always Pay Bills on Time

It is imperative to avoid late and missed payments because your payment history is the single biggest factor in a credit score, accounting for about 35% of the score. Since recent history carries more weight than what happened years ago, making on-time payments is a powerful way to rebuild your credit. If you know you will be unable to pay bills on time, contact your creditors to work out a payment arrangement and negotiate to keep the late notations off of your credit reports.

Keep your Credit Card Balances Low

Pay off debt, don't move it around. Owing the same amounts, but having fewer open accounts, can lower your score because lenders look at the total amount of debt you have in comparison to the total amount of credit available to you. The more debt you pay off, the wider that gap and the better your credit score. It's ideal to keep your balances below 25% of your credit card limit. Another way to keep a healthy balance-to-limit ratio is to charge less. Regardless if you pay off your debt each month, credit scores do not distinguish between those who carry a balance on their cards and those who do not.

Do Not Close Unused Accounts

A credit card with a zero balance might help your score. Closing credit accounts lowers the total credit available to you, which would increase your balance-to-limit ratio and, therefore, lower your credit score. Plus, closing an account does not necessarily remove it from your report. Payment history may still be considered for scoring purposes.

Do Not Apply to Open Multiple Accounts at Once

No matter how tempting those pre-approved credit card offers are, adding accounts too rapidly sends up a red flag that you might not be able to handle your credit responsibly. In addition, a new account will lower the average age of your accounts, which is another factor in your FICO score.

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Loan Approval

What is your FICO?

A FICO score is a credit score developed by Fair Isaac & Company to help lenders determine the risk involved in lending money to any person applying for a loan. It is widely accepted by lenders as one of the most important components helping determine eligibility as well as specific amounts, rates and terms that can be offered. FICO scores range from 300-850. The higher your score, the less risk involved in lending to you. There are approximately 30 factors that influence your credit rating. Some of these factors, such as your payment history, weigh more heavily on eligibility than others. Every factor’s importance varies by person and can change individually as your credit history lengthens. Also, keep in mind your score can change daily as new credit is established or debt is paid off. All factors can be grouped into 5 main categories.

Payment History

Do you make your payments on time? Since this determines approximately 35% of your score, it is certainly in your best interest to make all payments on time! Your payment history includes credit cards, car payments, mortgages, student loans and other loan types. Other public records on file, such as a bankruptcy, will be calculated in this group as well. If you have been late on payments, information such as how recently these payments were made and how much time elapsed between the due date and pay date will also factor into your score.

Outstanding Debt

How much debt do you have? All outstanding balances for credit cards, car loans, mortgages, etc. will determine about 30% of your score. How many of these accounts have balances? For example, if you can possible pay down significantly or pay off credit card debt, you’ll be in much better shape during loan approval. Eliminating some avenues of credit can demonstrate your willingness and ability to responsibly pay back new loans.

Credit History

How long have you been establishing your credit? Specifically, how long have your current accounts been opened and how long as it been since you used each of them? This usually determines approximately 15% of your score. If no credit history exists, you should begin by establishing credit accounts and be sure to keep them spotless. The less history that exists, the less the loan amount you’ll likely be able to obtain.

Pursuit of New Credit

Each time you apply for credit, there is an inquiry into your current credit score. If you recently applied for a VISA card, Nordstrom account and car loan, you may want to hold off applying for a home loan for a few months. Each inquiry may slightly reduce your FICO score and may portray you as someone overindulging in credit. This usually accounts for approximately 10% of your total score.

Types of Credit in Use

The number of accounts (such as ATM cards, car loans, credit cards) you have determines approximately 10% of your final score.

Once your bank is aware of your FICO score they may or may not choose to share this information with you. Assuming they do share your score with you, it is important to remember the higher the score, the more likely you are to obtain a loan. Also, a higher score directly translates to lower interest rates. Over time with home loans, lower interest rates can play a significant role in the total amount you SAVE!

Other Factors That Determine Loan Approval

Now, a great FICO score will not be the only determining factor in loan approval. Some additional factors that figure into the approval process include the following:

Income

Your current income will be a significant determining factor in loan approval. Pay stubs for the previous two months as well as W-2 forms for the previous year will be requested to help determine your ability to repay the loan amount.

Employment History

Your employment history can tell a lender much about your stability. If you’re constantly switching jobs, it could raise a red flag.

Down Payment

Being able to provide a down payment can be extremely useful in the loan approval process. It means the amount borrowed will be less than the total cost to purchase the home. In some cases, depending on the amount of the down payment, your monthly payments can significantly drop.

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Saving for a Down Payment

Keep Track of your Finances and Cut-back on Non-essential Spending

Write down your monthly income, savings, and spending. Even a couple bucks for your daily Carmel Macchiato at Starbucks adds up. So instead of spending money on the small stuff, put that into your savings. Open a savings account specifically for the down payment. Calculate how much you can afford to contribute to this account and arrange to make regular deposits.

Pay Off your Debt

Don't focus solely on saving for your down payment at the expense of paying interest charges on credit cards. The interest rates on these loans are much higher than the average rate for a home mortgage, meaning you are actually wasting money by accumulating a larger down payment while carrying credit card debt. Also, realize that the amount of debt you already have will determine how much you can borrow for your home. After minimum payments, start with the card with the highest interest rate and pay as much as you can. If you have more than one card, repeat this process after you've eliminated the debt in the first account. You'll be amazed how much money you can put into savings once it is not paying for interest on credit card debt.

Make your Savings Work for You

Rather than saving all of the money yourself, let what you've already saved earn you interest at the best rate possible. Often the best option is a Certificate of Deposit. Although the earnings on CDs are lower than some other types of investments, this is offset by a lower amount of risk. However, CDs can carry very low rates of return when interest rates are low. In these times, it is advisable to buy several certificates with different maturity dates. This strategy is known as laddering; if interest rates rise, the short term certificates can be reinvested at a higher rate. If rates should fall, then the longer term CDs have locked in a higher rate of return.

Use Special Programs

There are many programs for home buyers in down-payment distress. Borrowers in a wide range of incomes, locales and professional groups may have access to aid from Fannie Mae and Freddie Mac, the government-sponsored offices that buy mortgages and package them as investments. Some lenders and government agencies will let you buy a foreclosure with no down payment if you have good credit and they are anxious to have the home occupied, or if you have skills that you can use to increase the home's value. Various nonprofit and community groups also lend a hand to buyers struggling to put money down on a home. And don't forget about assistance from state agencies. To qualify for a down-payment assistance program, the purchaser typically can earn no more than 80% of a region's median income. Call your state housing finance authority, county housing and community development office or mayor's office for an application.

Use IRA Funds

Tax laws allow you to use up to $10,000 in Individual Retirement Account funds as a down payment if you have never owned a house. If you are married and you both are first-time buyers, you each can pull from your retirement accounts, meaning a potential $20,000 down payment. The IRS defines a first-time buyer as one who did not own a principal residence at any time during the two years prior to the purchase of the new home. If you are eligible, the IRS waves the penalty fee for early withdrawal. Although, you are likely to owe state and federal income tax on the amount withdrawn depending on the type of IRA you have. If you do not qualify as a first-time buyer, early withdrawal will include a 10 percent penalty as well as income tax.

Borrow from your 401(k)

Consider borrowing against your 401(k) for the down payment. Unlike an IRA home-related withdrawal, you'll have to pay back any money you take out. Even though your account contributions were made with pretax money, your repayment will be made with after-tax dollars.

Make Money on Items Lying Around the House

One person's trash is another person's treasure. Go through your house and sell unwanted items. Have a garage sale or post items on eBay. Perhaps you'll even find a savings bond hiding in a drawer that is ready to be cashed in!

Receive a Gift

Tax law allows gifts of several thousand dollars a year to be bestowed without tax consequences to either the giver or recipient, and it is not limited to relatives. Check with the IRS to determine the gift-exclusion amount as it is adjusted annually to reflect inflation. If no one is in a position to give you the money, perhaps they will agree to co-sign a loan.

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Moving Tips

Moving Checklist

8 Weeks Before Moving

  • Make a file folder that will store important documents, such as estimates from moving companies and receipts. Consult your tax advisor regarding expenses that are tax deductible.
  • Conduct some research on your new neighborhood. Find out where businesses like grocery stores, dry cleaners, gas stations, and restaurants are located in your new town.
  • Many cities provide a packet of information to new residents through the Chamber of Commerce. Call to request one.
  • Make a budget for moving expenses, including a moving company, and then begin requesting estimates.
  • Decide what each room in your new house will be for.

7 Weeks Before Moving

  • Get copies of all legal and financial records.
  • Organize and review your medical records, make sure to request any records that you do not have copies of. Let your medical providers know that you will be moving and ask for referrals to practitioners in your new area.
  • Repeat this process with your veterinarian, receiving a copy of all records and asking for referrals.
  • Call your insurance company and ask them to change your address. Also make sure that they make you aware of any rate adjustments based on your new address.
  • Make arrangements for school records to be transferred for your children to the district of your new home.
  • Make an appointment with representatives of any clubs or organizations that have a membership fee. Inform them you will be moving and make arrangements to end the relationship or transfer your membership to your new location.

6 Weeks Before Moving

  • Notify family and friends of your new address.
  • Start evaluating each room to determine items you do not want to keep and pack. Plan a garage sale and select a charity that will accept unwanted items.
  • Identify fragile objects and make a plan to hand carry these items or ship them under special conditions.
  • Plan ahead to use up items that do not travel, like frozen foods and cleaning products.
  • Consider subscribing to the newspaper in your new neighborhood to learn more about the community.

5 Weeks Before Moving

  • Acquire packing supplies and begin packing items that are not used regularly.
  • Complete your evaluation of your belongings and plan how you are going to dispose of unwanted items. Be sure to collect receipts when you donate to charities.
  • Decide if you need to rent a storage bin and, if so, make arrangements.

4 Weeks Before Moving

  • Complete the postal form for a change of address. The post office can hold your mail in your new city if your home is not ready to receive mail.
  • Arrange for all of your utilities to be shut the day after you leave your house, and your new home to have them turned on the day before you arrive.
  • Plan how your pets will arrive at your new home.
  • Hold your garage sale during this weekend.
  • Cancel your newspaper subscriptions after prepaying for the next 4 weeks.

3 Weeks Before Moving

  • Return any outstanding library books and pick up all dry cleaning.
  • Dispose of hazardous items.
  • Have scheduled maintenance performed on your car, even if it is slightly ahead of schedule.
  • Transfer your automobile registration to your new address.

2 Weeks Before Moving

  • Notify credit card companies and other bill collectors that you have changed addresses.
  • Transfer your bank account to the branch office in your new neighborhood or close the accounts, make sure to hang on to some cash to get you to your new location and pay for things until you are settled.
  • Confirm travel arrangements for pets and family.
  • Plan your menu so that you do not buy food that goes to waste. Come up with meals that need little preparation during the last weeks before the move.
  • Collect any items that you will turn over the new owners of the house.

1 Weeks Before Moving

  • Finalize packing and label the box that contains items you want to unpack immediately upon arriving. Pack your suitcases and valuables separately.
  • Empty any gas tanks including lawn mowers, gas grills or kerosene heaters.
  • Drain water hoses and waterbeds.
  • Empty your refrigerator the day before you move, then unplug the unit to allow it to defrost and clean it after the condensation has melted.
  • Unplug all appliances and prepare them for the move.
  • Fill prescriptions that will be due in the first few weeks after you move.
  • Arrange childcare for the day you are moving.

Moving Out

  • Carry out arrangements made for children and pets. Make sure caregivers know of your moving plans and how to contact you in case of an emergency.
  • Load your belongings in a pre-designated order. It is best to first load items that you need the least and make sure to put the heaviest items on the bottom.
  • Do a final check in every room, including closets and cabinets, to make sure that nothing has been forgotten.
  • Leave your new address with the future residents so that stray mail can be forwarded.

Moving In

  • Since you are likely to arrive to your new home before your belongings have, go through the house and check that your utilities have been connected and that appliance are functioning properly.
  • Decide where you want your furniture to be placed so that you can give clear directions once your possessions have arrived.
  • Confirm arrival time of goods and make sure you are there.

After You Move

  • Store all receipts and documentation in your move file.
  • Update your driver’s license with your new address and register to vote.
  • Send out change of address announcements.
  • Enjoy decorating and organizing your new home!

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Getting Rid of Extra Items

I know that the idea of moving can seem daunting, but it is also the perfect opportunity to get rid of the extra items that you have accumulated. Now is the time to go through your house room by room and toss out any possessions that you do not need. This will prevent you from spending time and money packing things you will not want.

Develop criteria that will help you to weed out items that are not worth taking with you to your new home. Here are some questions to consider:

  • Does it have sentimental value?
  • Who gave it to you?
  • Does it have monetary value?
  • Does anyone use it?
  • When is the last time it was used?
  • Will you use it again before you would want an updated version?
  • Is there room for it in our new home?
  • Will you miss it if it is gone?

Take inventory of everything you decide to keep and assign replacement values for insurance purposes. Plan to sell or donate anything that does not make the cut. Make sure to properly dispose of any hazardous materials, such as cleaning products and paint.

Pack away stuff that you know you will not use for a while. Since so many things need to be done at the last minute, it is a good idea to pack as much as possible before crunch times comes. Use up items that cannot be moved, such as foods that are stored in your freezer.

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Tips for Saving Energy

There is a website that I would like to share with you that provides energy saving tips for lighting, heating, cooling, water and appliances as well as car. It is http://www.eere.energy.gov/consumer/tips/. I encourage you to go through the house room by room in order to determine what steps you can take to use energy more efficiently.

With gas prices so high, it is always important to reduce the amount of gas we use. The website http://www.fueleconomy.gov/feg/drive.shtml discusses how driving speed affects gas mileage and provides tips for getting the best gas mileage you can.

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