Keith and Kinsey's Real Estate Update


Choosing a Lender
January 9, 2013, 11:37 am
Filed under: Real Estate | Tags: , , , , , ,

Your lender will be one of the most important people involved in your real estate transaction choosing them wisely is important. Just like agents, not all people within one organization operate the same. One loan officer at your bank may be horrible to work with and another may be great.

I always suggest people start looking for a lender one of two ways:

  • Ask you real estate agent who they recommend? Realtors have worked with many different lenders, and they know who has done a good job in the past and who hasn’t.
  • Ask your friends who they recommend? Your friends, family, or coworkers who have been through the buying process may have worked with somebody they really liked (or didn’t like).

So, how do you know if this lender will be good to work with? Here’s a few things to look for and pay attention to when talking to a lender:

  • Responsiveness is a key necessity in a lender. I’ve worked with lenders who wouldn’t respond to their clients questions for 4 or 5 days. This makes the buyer feel extremely insecure and freaked out through the home buying process. Find someone who responds at least within 24 hours when you call or email them.
  • Knowledge is another must have trait of a good lender. There’s a million different loan programs out there, but after talking through your situation, your lender should be able to give you guidance on what loan program best meets your needs.
  • Honesty is extremely important too. Of course it’s tough to tell if somebody is being honest with you in the first conversation you have with them. Although, your lender should be able to give you general guidelines about closing costs, fees, and rates. If you ask them questions about these things and you start to get the used car salesman vibe, run away. No offense to car salesmen, but you know what I mean.
  • Deadlines within your real estate contract must be met by your lender. So, you want somebody that is prompt and organized to meet these deadlines. Usually if they fit all of the characteristics above, they’ll come through with your deadlines. Of course, there can be snags in underwriting that aren’t your lenders fault, but a good lender will advise of those potential snags ahead of time.
  • Local lenders tend to be better to work with. It usually feels like somebody cares more about what you need, when you can actually sit down face to face. People get loans all the time without ever meeting their lender, but it’s good to know you have the option. It’s much nicer not dealing with a national call center.

Lastly, there’s the question of should you go with a broker or a bank lender. There is definitely a place for both.

  • Bank (and credit union) lenders are usually great to work with for somebody who is in a strong financial position to buy, and they often have the best fees and rates. Shop around for the best rates and fees.
  • Mortgage Brokers on the other hand are great at figuring out how to get the deal done if somebody is border line on a loan. They have a full arsenal of loan options available to them, and can sometimes make loans work that bank lenders can’t. Their fees and rates can sometimes be a bit higher, but if you’re not willing to shop around, they do the shopping for you potentially saving time and money.

In summary, there’s a lot to think about when choosing a lender, but take your time, ask for referrals and make a good choice.  If you are in the Madison area, there are some great lenders that we recommend on our web page.

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Ditching The Credit Cards
October 31, 2012, 9:52 am
Filed under: Money | Tags: , , , ,

Since moving recently, we’ve been working on getting our address updated every time we get a piece of forwarded mail. It came to the credit cards and we decided, “why update the address, let’s just close them!”

I know, I know, many of you are probably thinking closing your credit card accounts will hurt your credit score, but here is why we made the choice to ditch the plastic:

  • We’ve been using a debit card for the past 2 years that is tied to an interest bearing checking account earning 2% interest at Heartland Credit Union. It beats credit card rewards.
  • We spend less knowing we are using actual cash.
  • The service from the credit card companies sucks. When I called Citi to cancel our card I spent 37 minutes on the phone (28 minutes of that was on hold) and I got transferred 4 times.
  • We have an emergency fund and don’t need to rely on credit.
  • We wanted to simplify our accounting by reducing the number of accounts we need to track.
  • The rewards aren’t worth the hassles.
  • Fewer accounts means a lower chance of identity theft.

We use to be people who worked hard to maintain a high credit score. Doing real estate investment and carrying multiple mortgages on multiple properties, a credit score was extremely important to purchase the next property. Although, we have come to realize, Dave Ramsey was right; a credit score really is a “I love debt score”. You borrow and pay back; just to get a good enough score to borrow more and pay it back more with interest.  Wash, rinse, repeat.

We’ve reached a point in our lives where we are happy and content where we are. We don’t plan to move for at least 20 years. We’ve steered our real estate investments into a more conservative approach, we’ve got an emergency fund and IRA’s if we really get in trouble, and we have simplified the ways we handle our finances. So, at this point, I’d be perfectly happy if we never borrow another penny. Ever again.

I know closing long standing credit card accounts will hurt our currently phenomenal credit scores due even though there hasn’t been a balance in years. …but go ahead (not so) Fair Isaac, ding our credit score for cutting up our credit cards and closing our accounts. Even if our credit gets a 100 point hit (I don’t think it will be that much), dropping to a 710 credit score won’t bother me a bit.

I will admit, I kept one card open just for a backup if we are traveling. I’ve had instances when on a motorcycle road trip where my card got locked out due to gas stops every couple of hours in multiple states across the country. So, I figure one backup card probably isn’t a bad idea.

Also for those of you that currently use credit cards and looking to buy a house soon, don’t go closing your accounts just yet. If you are planning to get a mortgage in the next few years and you have been a user of credit, you are better off just keeping the credit card account open but not using it. My credit score did stay over 810 without using a credit card for 2+ years. Although, if you close long stand accounts your score will drop and it could negatively affect your mortgage terms. Amount owed vs credit available, and a length of account history are a large part of what makes up your credit score.

For those of you that haven’t started using credit of any sort but want to get a mortgage someday, you can get a mortgage with no credit score (just not a bad credit score). So, don’t go opening credit cards just to build a credit score.



Why Should A Condo Association Get FHA Approved?

Our condo association’s FHA approval recently expired and the condo board is currently debating whether or not to renew the qualification. Several of our board members have been rather opposed to getting the qualification with FHA extended. Although, the people opposed to this seem to view it as a low income housing program, which Is not the case at all. The board members have asked, “why would we want to get re-qualified?” I ask, “why wouldn’t we?” In my mind, the pro’s far outweigh the cons. In any case, I realized there are a lot of misconceptions out there about certain loan programs. So, here’s the real info…

An FHA mortgage is a loan provided by an FHA approved lender but backed by the Federal Housing Administration (providing additional security to the lender). This loan program only requires a 3.5% down payment (or equity for a refinance) for people with good credit scores. It is possible for someone with a weaker credit score to qualify for the FHA program with 10% down. The 3.5% down payment program is highly desirable to people that have the income to buy a home, but may not have much of a down payment (or those who just want to minimize their down payment).

FHA is not a low income housing program. It is merely a low down payment loan program. FHA still does a rigorous screening of loan applicants to check debt to income ratios, job history, income history, and credit. Maximum debt to income ratios are 31% for the mortgage and 43% in total debt. FHA even lends on properties up to $293,750 in Dane County.

So, why would a condo association want to be qualified for FHA?

  • FHA condo approval also qualifies the association for VA and USDA loan programs. This would open up a much larger pool of potential buyers.
  • Condo financing is actually more difficult than single family home financing these days. If people can’t get loans, it will negatively affect property values.
  • The more buyers there are capable of getting financing within a condo development the quicker units should sell and the stronger the home values should be.
  • Making refinancing easier for current owners will hopefully reduce the number of foreclosures- also helping keep values stronger.
  • Other agents keep asking us, “Is this development FHA approved? My buyer is looking for FHA”. So there is definitely demand.
  • Your association will have qualifications above the competition.

What are the misconceptions and questions of people opposed to getting a condo association FHA approved?

  • Won’t this bring in low income people? Answer: No, this is not a low income loan program.
  • Aren’t FHA buyers more likely not to pay their condo dues on time? Answer: No, they still have to meet similar debt to income ratios as conventional buyers. So, there’s no reason they should be less dependable.
  • Couldn’t these lead to more foreclosures since people can buy with less equity? I haven’t seen any statistics to prove this. In theory if units become easier to sell prices would increase and sales would improve. To me this means people in financial trouble would have an easier time selling, rather than walking away.

So again, what’s the downside of an association being FHA approved? I don’t know. All I see are benefits such as stronger prices, quicker sales, current owners ability to refinance, and an overall stronger association.



Improve Your Credit Score!

I’m a big advocate for not borrowing money. However, most of us borrow to own a home. Having a good credit score can help save you money on interest rates. Even a 0.25% difference in interest rate makes a huge difference over the life of a mortgage. Credit scores can even affect insurance rates, and whether or not you get that job you applied for. So, it is important to maintain a good credit score.

Your credit score is made up of 5 categories, and each category is weighted in the percentages shown in the chart above. Paying attention to this and making small changes will help improve your credit score.

Payment History: This makes up 35% of your credit score. Your score shows a lender how big of a risk you are at defaulting or paying late, so it’s obvious why this is heavily weighted in your score. If you have been late on payments in the past, paying all of your bills on time will have the biggest positive effect on your score.

Amounts Owed: This makes up 30% of your score and is calculated as a ratio of amount of credit available vs amount of credit used. It’s best to have credit available but not be using it. For example If you have a credit card that has a $1000 limit and you have $900 on it, 90% of your credit is used and 10% is available. This is bad for your credit score. If you had a credit card with a $9000 limit, and you had the same $900 on it, 10% of your credit is used and 90% is available. This is good for your credit score. The best thing to do is pay off your debts so that you have a low ratio of credit used to credit available. However, you can actually increase your credit score by getting your credit lines raised. If you’re the person that has $900 on a credit line with $1000 limit, ask for an increase on your limit, it can make a big difference. Just don’t use that extra credit, or you’ll dig yourself in a deeper hole! I highly recommend not using credit cards unless you can pay of the balance at the end of the month. Some people will say paying off your credit cards hurts your score, but I have never carried a credit card balance and my score is close to 800. I’m sure I could bump it up a few points If I left 1% of the credit limit on each card, but it’s not worth it at that point.

Length of Credit History: This is how long you have had different credit lines open and it makes up 15% of your credit score. If you have a 10 year old credit card that you never use anymore it can be beneficial to leave it open rather than close it. The credit agencies like to see a long history on accounts.

New Credit Accounts: A better way of saying this is credit inquiries. This makes up 10% of your credit score. The number of places you have recently applied for credit can actually hurt your credit score. It shows the credit bureau that your looking for credit. For instance, if you were looking at cars and the car dealership ran your credit to see if you qualified (even if you didn’t buy), then the following  later you apply for a mortgage, the car dealership running your credit will have actually reduced your score by a few points. So, try to avoid having your credit checked if you’re not sure you will follow through with what you are applying for.

Types of Credit Used: This is also weighted at 10% of your score. The credit bureaus like to see different types of credit utilized. Ideally a person would have 3-5 revolving lines of credit (credit cards or department store cards), 1 mortgage, and 1 car loan (of course all with low balances). A good mix of credit helps, but if you start having multiple mortgages and multiple car loans it can actually hurt your score.

In summary paying attention to the way credit is scored and using your money responsibly will have a big impact on your credit score. Since I prefer not to use much debt, because I perceive debt as risk, I prefer not to borrow money on cars or credit cards. I’ll drive a beater car before getting a loan on something that goes down in value. I’ve found that I can keep my credit score in the highest bracket just by having a mortgage that gets paid on time, a few credit cards that get paid off every month (or don’t get used), and a home equity line of credit that is paid off (but still open).

If you’d like to check your credit report for free go to www.annualcreditreport.com . This is a legitimate government backed site. It will not show you your score but it will give you a fully detailed credit report. Just make sure you decline any extra services they offer.

To get a free credit score try www.creditkarma.com . This site is not your actual score from the three main credit bureaus but it’s an independent estimate of your score and it’s extremely close to reality. I use it myself and my score is within 3 points of my Trans Union score.

What’s a good Credit Score?