Keeping Score (With your Credit)

Your credit score.  It seems to determine everything these days from buying or refinancing a home to getting a good rate on insurance to getting a job.  But how is that score determined and what can you do to raise yours?  It's pretty widely known that credit scores range from a low of 350 to a high of 850.  For a mortgage you need a minimum score of 620 and for a the best rates and terms you need it to be over 720.  Here's a breakdown of what goes into your score along with some tips to keep that score as high as possible. 

These percentages are approximate values of each aspect of the score:

35%: Your Payment History

This one's pretty obvious; do you pay your accounts on time.  It also includes how many times you've been past due on an account and how long it's been since you've been deliquent

Tips:

• Always try to pay your bills on time
• If you're currently past due, try to get current
• ***Here's one you might not know:  If you've got small collections that have been on your report for a while, it might hurt you to pay them off (at least before you apply for a loan).  Many times these collections will show the amount owed but the creditor may have stopped reporting them.  That means the late payment information continues to get older.  If you pay them off the creditor will report this which will then make the late information current and possibly lower your score.  Now, you're going to have to pay these off eventually but it might be a better strategy to wait and pay them off at the closing of your loan.

30%: Amounts You Owe
This is how much you owe on accounts, how much of your credit lines you've used (are you're cards maxed out?), amounts you owe on installment accounts compared to the original balance, and the number of accounts you have that have a zero balance.
Tips:

• Keep your credit card balances as low as you can
• Pay off debt, don't move it around
• Don't close unused accounts.  Zero balance accounts might help your score.
• Don't open new accounts that you don't need.  You might think this would help by altering your debt to credit ratio but it can lower your score.

15%:  Length of Your Credit History
This is is the total length of time tracked on your credit report, the time since each account was opened, and the time that's passed since you last used each account.
Tips:

• There's really only two things you can do for this one.  One, don't close those zero balance accounts you don't use.  You want to keep accounts open as long as possible.  And two, don't open several new accounts in a short period of time.  Adding accounts too fast sends up a red flag that you might not be able to handle your credit responsibly.

10%:  Types of Credit Used
The mixture of revolving accounts, installment accounts, mortgage accounts, etc. makes a difference.  
Tips:

• Try to have a mixture of credit cards and installment loans (car loans, student loans, etc.).  This can help raise your score if you manage the credit cards responsibly.
• Having too many installment loans can lower your score.
• Don't open new accounts just to have several accounts or to attempt a better mix of credit.

10%: New Credit
This has to do with the number of accounts you've recently opened, the number of times your credit has been checked recently (credit inquiries), the time that's passed since you've opened accounts or had inquiries, and whether you've re-established positive credit after you've had problems.
Tips:

• Watch your credit inquiries.  Several in a short period of time might mean that you are attempting to open several new accounts and that can lower your score.
• If your shopping for a loan the software can usually see that the inquiries that are being made are for the same type of loan so it will discount the multiple inquiries.  However, make sure if you're shopping have your credit pulls made as closely together as possible.  Or better yet, get your credit scores from the first lender you try.  A good lender will be able to give you qualification information with just the credit score number.  They'll have to pull the score eventually if you decide to use them but they won't have to pull it while you are shopping.
• Checking your own credit does not affect your scores

Each of the three credit agencies score a little bit differently but the breakdown above gives you a general idea.  If you've got questions about individual circumstances, please let me know and I'll be happy to help!

Long Term Strategies and Short Sale Warning

We've all heard it, interest rates are at historical lows.  How do you take advantage of the current low rates?  Maybe you purchased or refinanced in the last few years and your current rate is, for example, 5.5%.  A lot of people I talk to say "it doesn't make any sense to refinance since I'm not lowering my payment much."  That might be true but there are other things to think about when making that decision.  You might want to think about the long term as well as the payments to see what refinancing can do for you.  You might also look at some of the options that you don't hear much about.

Warning:  Math Coming Up (Don't fall asleep on me!)

Lets look at an example with of a $200,000 loan where the existing interest rate is 5.5%.  That would make a payment of $1135.58 per month.

Option 1:  Refinance into a 4.75% (APR of 4.754) 30 year loan.  This lowers the payment to $1043.29 saving $92.29 per month.  Long term thinking:  If you plan to keep the loan say, 10 years, the savings comes to $11,074!

Option 2:  Look at a 25 year mortgage.  This is one of those loans you don't hear much about but it is available.  Leaving the rate the same at 4.75% the payment comes to $1140.23.  Long term thinking:  That payment is about $97 more than the 30 year option but only $4.65 more the 5.5% payment.  And here's the kicker, over the term of the loan the interest savings by lowering from 30 to 25 years comes to $33,516!

Option 3:  Look at a 20 year mortgage.  Again, not a loan you hear much about.  On this loan lets look at a rate of 4.625% (APR of 4.63%).  The payment here would be $1278.83.  Long term thinking:  The payment is $236 over the 30 year option and $143 over the current payment.  But, you could pay off your loan in 20 years and the interest savings over the 30 year option (over the life of the loan) comes to $68,668!  Now we're talking about some serious money!

OK, math over.  I know that's a lot of numbers and you're probably close to going into a coma now.  What you need to take out of all of that is that there are other things to think about when when making a decision about financing.  You need to look not only at the payment but what the long term effects of the program you choose are. 

Short Sale Warning:
For those of you thinking about selling your home as short sale here's something I ran across that you should be aware of.  Some mortgage servicers are continuing to report delinquencies up to 10 months after the short sale closes.  Once you close on your short sale make sure you contact your servicer (who you make your payment to) and tell them to stop reporting any further late payments.  This can help to reestablish your credit much more quickly.

Don't Have Much to Put Down?

With all of the changes to the mortgage market lately a question I get asked quite a bit is about no or low down payment options.  Many of the programs of the past have gone away but there are still options available.  Here's a few to keep in mind:

VA Loans:  Are you a veteran.  Don't forget the original 100% financing option of a VA guaranteed loan.  This is a great option because you get a zero down loan combined with no monthly mortgage insurance.

USDA Rural Housing:  This loan doesn't work for everybody but if you meet the qualifications it's a great option.  The rural housing loan is only available outside of the metro area.  However, some people don't know that it is available in places like Sherwood, Wilsonville, and Sandy.  Like the VA loan, this program allows for 100% financing and the fee is added to the top of the loan amount.  Again, this means no monthly mortgage insurance.  There are some income guidelines to watch out for so if you're interested, give me a call and we can go through them.

FHA:  Most people are familiar with the FHA loan program.  This isn't a zero down program but it's pretty close.  FHA requires 3.5% of the purchase price as a down payment.  What some people don't know is that the down payment can come from a gift or even a loan from a family member (as long as you can still qualify with the loan payment).  So if mom or dad is willing to help this might be an option for you.  This is also a great loan if you can get a family member to co-sign for you.

All of these options allow the seller to pay up to 6% of the value toward your closing costs (FHA may change that to 3% in the near future but so far they haven't given a date).  So, you could get in a home with little to no money out of your pocket!

These options are are also the most lenient on credit scores right now.  As long as your score is 620 or above you're good to go.

Rates at Lows of the Year!
If you've been waiting for rates to decline this might be the time for you to jump into the market.  30 Year rates are averaging in the high 4% range at their lowest levels of the year.  If you've been thinking about buying or refinancing your home, it's not going to get much better than this!

Have a great day!
Derrick
503-475-0612

What is the Real Cost of a Loan?

I get asked this question a lot by people that are shopping for the best deal.  And there is not one simple answer so I wanted to take a second to give you some basics and a starting point to think about.  The cost of a loan include the hard costs such as lender fees, third party fees and the interest rate (which itself isn't simple), as well as the intrinsic value or the value of the service you receive.

Let's start off with the hard costs.  Every transaction is going to have what are called "third party" fees and these should be fairly consistent from lender to lender.  These are things like the appraisal, title, escrow, recording, etc.  Then there are going to be the lender's own fees.  These are typically the origination fee, underwriting, processing, things like that.  Since these fees are determined by the individual lenders, they can vary quite a bit.

The interest rate is usually what people want to know first, and for good reason.  Your monthly payments will be determined by this.  The rate should be fairly consistent although there is some flexibility and variability.  Typically your lender or mortgage broker will be given a range of rates each day.  Each rate has a cost associated with it.  From the lowest options that usually come with a cost to you (or discount points) to a higher rate where there are more options for including closing costs.  This is because, on the higher rate options, the lender is paid back and can use these funds toward your fees.  If you've ever heard of a "no fee-no points" loan, it's typically done by charging a higher rate and using the funds received from the bank to pay the costs.  Most of the time people want something in the middle (the par rate) where they aren't paying for it upfront and the lender isn't getting paid back.

If you're being quoted a rate that is quite a bit different than everyone else (and in this business that usually means .25% to .50% different), it's usually a "too good to be true" moment.  All of the lenders and mortgage brokers have basically the same sources of money.  It used to be hundreds of different investors but it's now down to just 10 to 20 that we get rates from.  And those 10-20 typically boil down to the 5-10 big banks that are still out there.  So if the rate you are being quoted is significantly different from other quotes you need to check the other figures to see where it is being made up.

Which brings us back to the closing costs.  If the rate is too good to be true it might mean that the cost to get that rate is buried somewhere else in the closing costs.  Watch them closely and compare each line item.  The other think that could happen is you're not getting the product you thought you were.  There have been many instances of people thinking they are getting a 30 year fixed product and end up at closing with some kind of ARM product instead.  And there are lenders out there that are hoping you don't notice the small print, at least until you're too far into the deal to change it.

Most often the biggest difference and most important one you will find from lender to lender is the intrinsic value (the value of the service).  There are a lot of things to look for when it comes to getting a mortgage, from the rate and costs to the lender qualifications, market guidelines, compliance, etc.  Now more than ever it takes a lot of effort to keep up with all of the changes. 

The bottom line is to be aware, ask questions and use someone you can trust.  You might find an incredibly low rate shopping the internet but will most likely end up with an 800 number and a customer service person that's probably not even in the country, let alone the northwest.  And if problems arise or numbers don't end up as you were thinking it can be extremely difficult to ask questions about options, get updates on your status, or probably even reach the same person twice (that goes for some of the bigger lenders out there as well).  If you've ever dealt with your cell phone provider to get answers you know what I'm talking about. 

I have been in this business for over 16 years and have developed the ability to streamline the process for my clients, predict where problems may arise and how to deal with them, and I'm always available to answer questions and guide you through the process.  I may not always have the lowest rate or fee quote but I am always competitive and truthful and make it a priority to find the best product for your situation.  I am upfront when it comes to the costs and process because it is not fun for anyone involved (me included) to be surprised or thrown a curve when you are dealing with a large and important transaction like your home.

With rates still extremely low and the tax credit advantages available there are many opportunities for you, your family, and your friends.  If you know of anyone that is interested in buying a home or that has other mortgage needs, please have them give me a call.

Uncle Sam's Christmas Present

Over the last year all we've heard about is stimulus for this, stimulus for that.  If you're anything like me you've probably been thinking that you got the short end of the stimulus stick.  Well, not so fast my friends! (my son is a huge college football fan so, if you watch College GameDay on Saturday morning, you'll get that reference).


The President just signed an extension of the first time homebuyer tax credit.  This was set to expire at the end of November but has been extended until June 30th.  The really good news is that a credit is now being offered to those that have owned a home also.  The first time buyer credit is still $8,000.  The move up credit is $6,500 and is being offered to homeowners who are buying a new primary residence beginning December 1st.


The language mandates that to get the credit the homeowner must have owned their home for five consecutive years of the previous 8.  There are income limits to watch out for too: $125,000 for individuals and $250,000 for couples.  And there is an anti-flipping rule.  Any homeowner who collects the credit and sells within three years must return the money (it's the same for the first time buyer credit).  The extension goes into effect on December 1st and covers consumers signing a contract by April 30th and closing by June 30th.

If you'd like more information, the government has set up a website with frequently asked questions.  Just go to:  The Federal Housing Tax Credit website.  And as always, I'm happy to answer any questions.