4 Ways to Improve Your Credit Score

You’ve heard over and over that now is the time to buy. House prices are increasing and mortgage rates are at historical lows and you know you need to get into the game. But what do you do if your credit doesn’t look that great? Here are 4 things you can do to improve your credit score so that you’re ready to buy your first house.

1. Get copies of your credit report and make sure it’s accurate.

Errors on your credit report can force you to pay a higher interest rate or even disqualify you from getting a mortgage at all. Go to www.annualcreditreport.com and get a free report from each of the three national credit reporting companies (Equifax, Experian and TransUnion) According to federal law, you’re eligible for a free report every twelve months. Check for any errors, accounts that aren’t yours, or negative marks older than seven years. Make sure lenders have reported your credit limits accurately, because they can affect your credit score.

2. Make all your payments on-time.

The easiest way to build up your credit score is to make every payment on-time. If you don’t have a good bill-paying system, you can set up automatic payments from your bank account to help you pay on time.

3. Improve your debt-to-credit ratio.

The credit-scoring process looks at the ratio of your debt to the total amount of available credit you have. While your credit card might have a $10,000 maximum balance, having it maxed out looks bad to potential lenders and doesn’t look good on your credit history. Some lenders may consider multiple maxed out balances to be a sign of irresponsibility on your part. Your long-term goal is to get rid of all your debt, but a good, short-term target is to shrink your ratio to less than 50 percent. Then 40, then 30, and so on.

4. Pay it off, but don’t close it out.

Because Lenders looks at your debt-to-credit ratio, having an account with a $0 balance but a high credit limit can be a good thing. Lenders also look to see the length of time an account has been opened. They want to know that you can handle debt on a long-term basis because they are considering loaning you a large sum of money for 30 years. Avoid opening up new accounts just to increase your credit limit. Adding accounts too quickly sends up a red flag that you might not be able to handle your credit responsibly.

If you’re planning on buying your first home in the near future, follow these tips to help raise your credit score and build a well-rounded credit history that will make lenders want to loan you the money for your mortgage. Contact a mortgage professional at Walden Mortgage for more information on purchasing your first home.

Big Changes to FHA Loans

This post is brought to you by Mike Dunn and Jeff Sharp of Walden Mortgage Group.

There are two big changes going on in the mortgage world in the next few months. One of the most popular types of low down payment mortgage loans known as a Federal Housing Administration loan, or FHA loan for short, will be making changes to the mortgage insurance premium collection policy (you may know it as mortgage insurance, or MI). 

If a new borrower’s MI is not ordered before April 1^st (meaning the final contract is completed), the annual MI, which is included in the monthly payment to the lender, will increase by .10%. That means that if you have a loan amount of $180,000, you would pay an extra $15 per month on your mortgage payment and, more specifically, towards your MI, if your MI is not ordered before the April 1^st deadline.

 

So what do you need to do?

 

If you are already in a loan, locked in, and not looking to refinance, these changes do not affect you. If you are in the process of buying a house and need FHA financing or you are planning on refinancing, you need to speak with your Walden Mortgage Group loan officer as soon as possible to lock in the lower MI.  You must have your final contract completed by Friday, March 22^nd at 5:00pm to ensure proper processing turn times are allowed for what will surely be a busy last week of March. 

 

The second, and possibly more impactful change, will occur for new borrowers who do not lock in their MI before June 3^rd, 2013. Currently, if you are paying MI, you can drop this added monthly fee after 5 years of owning your home, as long as you have made on-time payments and have paid the loan down to 78% of the original sales price. For those who miss this deadline and still

desire to use FHA financing, you will be required to pay the higher MI for the entire term of your loan!  After the 5^th year in your new home and with a loan amount under 78% of the original sales price, you would have to refinance your loan to drop the MI, but likely to a higher interest rate as rates will likely not be as low as they are today. In order to lock in your MI before the June 3^rd deadline, a completed contract is needed before Friday, May 24^that 5:00pm. 

 

These changes can be confusing. Walden Mortgage Group is here to help. If you have any questions regarding FHA loan changes, mortgage insurance or today’s interest rates, contact your Walden Mortgage Group loan officer at 859.514.4444 or visit our website.

  

Top 3 New Year's Resolutions

Buying is Cheaper Than Renting

Many factors go into deciding whether or not to purchase a home. But, if you are able to buy, it’s been proven to be the cheaper route. Trulia.com announced two weeks ago that in America’s 100 largest metropolitan areas, buying a home is more affordable than renting.  

Asking home prices have risen by 2.3% year over year, however, rents have risen more (4.7%). This means that home prices are lower relative to rents than they were a year ago.

Mortgage rates have also fallen. The best rates this summer have been around 3.5%, while last summer rates were closer to 4.5%. With rates that low, it makes home buying a powerful option.

There are several other factors to take into consideration when making these calculations, such as tax deductions and the length of time that you plan to remain in your home. You get the best savings by staying in your home seven years or longer. Seven years is the average amount of time a homeowner remains in their property, so for most people, this cost savings will be high.

The decision to rent or buy a home is very personal. There’s a strong emotional component: some people want the security of homeownership and others want the footloose freedom of renting. Affordability is at an all-time high and renting is no longer viable as the cheaper option. If you are able to buy a home, now is the time to do it!