When will the Private Mortgage Insurance (PMI) drop off of my home loan? A good friend of mine called me today to ask about a loan he had on a property in Florida. He financed the house with a 95% loan, but his value keeps dropping; probably below what he still owes for the house today. His question was, “At what point will my mortgage insurance drop off?”
Luckily for him, the mortgage insurance (MI) question really has to do with what you buy the home for, not what it is worth on the market today. PMI is an insurance policy to protect the lender should you default on your loan. If you were to quit making your payments and the house was foreclosed on, the MI Company would cover a certain percentage of the loss for the lender if they encountered trouble selling the property.
For you as the homeowner, once you pay down to 78% of the original purchase price (or appraised value whichever was lower at the time) then the mortgage insurance is required by federal law to drop off of your loan. In his case, he is paying about $280 per month in mortgage insurance. The MI will drop off when he pays about $3,000 additional to the principal on his loan. Since he has the cash available, it is better to pay $3,000 now on his loan, and eliminate the MI now, because that will save him $3,360 over the next 12 months.
If you have a question, send me an email: richard.swan@migonline.com and I will try to answer your question. Remember the First Time Homebuyer’s Tax Credit and the Long Time Homeowner’s Tax Credit end on April 30th. Make sure you have a contract to purchase by that time.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Wednesday, March 24, 2010
Friday, March 19, 2010
What is a Credit Score?
I keep seeing all of these ads for free credit reports. What is a credit score?
Credit information is collected by three credit reporting agencies: Equifax, Experian, and Trans Union. From the information collected by these three reporting agencies, a score is generated, the purpose of which is to determine the likelihood that you as a borrower will repay a debt.
What affects your Credit Score and How Much?
1. Payment History (35%)
What is your history of paying the credit accounts that you have? That is one of the first things that a lender will want to know. If others have trusted you with credit in the past, did you pay them back? Your credit history will reflect this for all types of accounts (revolving, installment, retail store accounts, car loans, mortgage loans, and finance company accounts).
Delinquencies occur when your account is not paid on time. Always make sure that you make at least the minimum monthly payment on your account. Late payments are recorded in 30 day increments. If your payment is due on the 20th of the month, it should not be recorded delinquent before 30 days have passed after the due date. A recent 30 day late on your account will affect your credit more than a 60-90 day late from 5 years ago.
Bankruptcies, tax liens, child support, judgments, and collections can stay on your credit for 7-10 years. Deal with these as they occur and work diligently to make sure that the information the credit agencies have is accurate.
Once these types of derogatory credit have occurred, it is even more important to work to re-establish your credit. Many people stop borrowing money after a bankruptcy for fear that they will not be able to get a loan. Work to re-establish your credit early. Open secured credit card accounts through your bank or credit union. Take out small loans and repay them quickly so that this information is reported on your credit.
2. Amounts Owed (30%)
The total amount owed on all of your accounts can be a factor in your score, but more specifically the amount owed on revolving accounts relative to the account limit. Balances on credit card accounts should be less than 50% of the credit limit for each account. Accounts that show more than a 50% balance can reduce your credit score; worse if the balance is above 75% of the credit limit.
3. Length of Credit History (15%)
How long have your accounts been open and how long since you used certain accounts? Installment loans should be opened and paid off. Paying them off early reduces your total debt, but does not necessarily improve your credit. Credit cards should be used every 3-4 months; this keeps them reporting accurate information and current credit information. Credit Scores look at the age of your oldest account and also the average age of all of your accounts. Closing long established accounts can lower your credit score. Leave your accounts open unless you are having an issue with a particular creditor.
4. New Credit (10%)
Are you taking on too much to handle? Credit Scores gauge the amount and types of new credit that you have and also look at credit inquiries. Accounts with less than a 12 month history can have a derogatory effect on your credit. Individuals, who roll balances from established credit cards to new accounts continually, can lower their credit scores by lowering the average age of their accounts and by not showing at least a 12 month history on existing accounts.
5. Types of Credit (10%)
You credit should have a mix of different types of credit. Installment loans (cars, boats, etc.), revolving accounts (Visa, MasterCard, Discover, etc.), mortgages, store accounts (Sears, Target, etc.) all factor in to your total score. If you have a mix of these types of accounts, with a clean payment history, that shows a good use of credit.
How to contact the credit bureaus to dispute information on your credit report:
Disputing an account can actually keep you from closing on a loan (at least with mortgages it can). People ask why, I don’t owe them anything? The lender doesn’t know what the outcome of the dispute will be. It could be that you owe more and they establish $200 to $300 per month as a payment. It could become a judgment that would be placed against your home. Disputes represent an unknown result. Be diligent when filing a dispute to resolve it quickly and make sure it gets report correctly to the three main bureaus.
Equifax: (800) 685-1111, www.equifax.com
Experian: (888) 397-3742, www.experian.com
TransUnion: (800) 888-4213, www.transunion.com
Remember that they report accurate information. Just because you say a debt is paid, doesn’t mean they will remove it from your credit file. It is important to report life events to the credit bureaus to make sure that information is reported accurately. Bankruptcies, divorces, child support, and tax liens often create situations where mistaken information is reported to the credit agencies. When you go through a bankruptcy, make sure that all of the accounts included were listed correctly on your credit. Tax liens almost always get reported delinquent, but rarely get changed to show them paid. This is your credit; make sure you monitor it yourself.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Credit information is collected by three credit reporting agencies: Equifax, Experian, and Trans Union. From the information collected by these three reporting agencies, a score is generated, the purpose of which is to determine the likelihood that you as a borrower will repay a debt.
What affects your Credit Score and How Much?
1. Payment History (35%)
What is your history of paying the credit accounts that you have? That is one of the first things that a lender will want to know. If others have trusted you with credit in the past, did you pay them back? Your credit history will reflect this for all types of accounts (revolving, installment, retail store accounts, car loans, mortgage loans, and finance company accounts).
Delinquencies occur when your account is not paid on time. Always make sure that you make at least the minimum monthly payment on your account. Late payments are recorded in 30 day increments. If your payment is due on the 20th of the month, it should not be recorded delinquent before 30 days have passed after the due date. A recent 30 day late on your account will affect your credit more than a 60-90 day late from 5 years ago.
Bankruptcies, tax liens, child support, judgments, and collections can stay on your credit for 7-10 years. Deal with these as they occur and work diligently to make sure that the information the credit agencies have is accurate.
Once these types of derogatory credit have occurred, it is even more important to work to re-establish your credit. Many people stop borrowing money after a bankruptcy for fear that they will not be able to get a loan. Work to re-establish your credit early. Open secured credit card accounts through your bank or credit union. Take out small loans and repay them quickly so that this information is reported on your credit.
2. Amounts Owed (30%)
The total amount owed on all of your accounts can be a factor in your score, but more specifically the amount owed on revolving accounts relative to the account limit. Balances on credit card accounts should be less than 50% of the credit limit for each account. Accounts that show more than a 50% balance can reduce your credit score; worse if the balance is above 75% of the credit limit.
3. Length of Credit History (15%)
How long have your accounts been open and how long since you used certain accounts? Installment loans should be opened and paid off. Paying them off early reduces your total debt, but does not necessarily improve your credit. Credit cards should be used every 3-4 months; this keeps them reporting accurate information and current credit information. Credit Scores look at the age of your oldest account and also the average age of all of your accounts. Closing long established accounts can lower your credit score. Leave your accounts open unless you are having an issue with a particular creditor.
4. New Credit (10%)
Are you taking on too much to handle? Credit Scores gauge the amount and types of new credit that you have and also look at credit inquiries. Accounts with less than a 12 month history can have a derogatory effect on your credit. Individuals, who roll balances from established credit cards to new accounts continually, can lower their credit scores by lowering the average age of their accounts and by not showing at least a 12 month history on existing accounts.
5. Types of Credit (10%)
You credit should have a mix of different types of credit. Installment loans (cars, boats, etc.), revolving accounts (Visa, MasterCard, Discover, etc.), mortgages, store accounts (Sears, Target, etc.) all factor in to your total score. If you have a mix of these types of accounts, with a clean payment history, that shows a good use of credit.
How to contact the credit bureaus to dispute information on your credit report:
Disputing an account can actually keep you from closing on a loan (at least with mortgages it can). People ask why, I don’t owe them anything? The lender doesn’t know what the outcome of the dispute will be. It could be that you owe more and they establish $200 to $300 per month as a payment. It could become a judgment that would be placed against your home. Disputes represent an unknown result. Be diligent when filing a dispute to resolve it quickly and make sure it gets report correctly to the three main bureaus.
Equifax: (800) 685-1111, www.equifax.com
Experian: (888) 397-3742, www.experian.com
TransUnion: (800) 888-4213, www.transunion.com
Remember that they report accurate information. Just because you say a debt is paid, doesn’t mean they will remove it from your credit file. It is important to report life events to the credit bureaus to make sure that information is reported accurately. Bankruptcies, divorces, child support, and tax liens often create situations where mistaken information is reported to the credit agencies. When you go through a bankruptcy, make sure that all of the accounts included were listed correctly on your credit. Tax liens almost always get reported delinquent, but rarely get changed to show them paid. This is your credit; make sure you monitor it yourself.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, March 8, 2010
Thinking About a Second Home?
We would like to buy a cabin, but our neighbor said it was very hard to get financing; what are our options? Second homes are generally treated the same as your primary residence. You can finance them with a low down payment, and the rates and closing costs are reasonable. The biggest hurdle is proving that the property will actually be a second home.
Second homes are considered vacation homes and you must prove it will not be a rental property. Typically, it must be at least 50 miles from your primary residence, and located in a resort type area. A mountain cabin or lake home would be a good example of a second home. In some cases, you may be able to claim a second home less than 50 miles away, if you meet this “resort” designation.
The second requirement deals with any lease or other agreement that you have regarding the property. If you have a lease that prevents you from access to your home, then it may require that you treat the home as an investment (rental) property instead of a second home. Typically, investment property requires a 20-25% down payment and would have higher closing costs, or a higher rate.
You can rent the property, but cannot have an agreement with a rental company that gives them exclusive rights to the property and prohibits you access.
Take the time to understand the loan guidelines and make sure that you are upfront with your intent. In most cases, mortgage fraud is a felony; not just for the lender, but for you as an individual.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Second homes are considered vacation homes and you must prove it will not be a rental property. Typically, it must be at least 50 miles from your primary residence, and located in a resort type area. A mountain cabin or lake home would be a good example of a second home. In some cases, you may be able to claim a second home less than 50 miles away, if you meet this “resort” designation.
The second requirement deals with any lease or other agreement that you have regarding the property. If you have a lease that prevents you from access to your home, then it may require that you treat the home as an investment (rental) property instead of a second home. Typically, investment property requires a 20-25% down payment and would have higher closing costs, or a higher rate.
You can rent the property, but cannot have an agreement with a rental company that gives them exclusive rights to the property and prohibits you access.
Take the time to understand the loan guidelines and make sure that you are upfront with your intent. In most cases, mortgage fraud is a felony; not just for the lender, but for you as an individual.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Saturday, February 27, 2010
How Much Down Payment on a Home do You Need?
My friend did an 80/20 loan when she bought her house and didn’t have to put any money down, how can I get one of those? Two years ago in the mortgage lending world, there were many programs that allowed borrowers to max out the value of the property with low down payments. What lender’s found is that Real Estate, like any other investment, can be subject to fluctuations in value. If you loan someone 100% of the value of their property and that value drops, you could be left holding the bag.
Now, most lenders’ require some type of down payment, except for limited programs for Veteran’s and first time buyers. In most cases, you will need to have at least a modest (3.5%-5% down payment) in order to qualify to purchase a home. Credit scores have also become a more important part of the qualification process. If your credit score is below 680, you may need to put up to 20% down, unless the property will qualify for an FHA or First Time homebuyer’s program.
To find out all of your options, make sure that you are dealing with a mortgage banker. They will have access to more programs and be able to talk with you in detail about all of your options.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Now, most lenders’ require some type of down payment, except for limited programs for Veteran’s and first time buyers. In most cases, you will need to have at least a modest (3.5%-5% down payment) in order to qualify to purchase a home. Credit scores have also become a more important part of the qualification process. If your credit score is below 680, you may need to put up to 20% down, unless the property will qualify for an FHA or First Time homebuyer’s program.
To find out all of your options, make sure that you are dealing with a mortgage banker. They will have access to more programs and be able to talk with you in detail about all of your options.
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Tuesday, February 23, 2010
Homebuyer's Tax Credit
http://knoxvilleneighbors.blogspot.com
What is all the information I keep hearing about a Homebuyer Tax Credit? Currently two tax credits exist for home buyers. They are filed through the IRS with your 2009 Taxes, or as an amended return.
The first is a tax credit for First Time Homebuyers. This credit allows you to receive up to 10% of the purchase price (up to $8,000) when you purchase a home. This blog is not designed to qualify you for the credit, but to give you basic information. You must not have owned a home that was your primary residence within the last 3 years. You cannot use the credit to buy a home from a close relative (parent, grandparent, spouse, or child), or when you inherit a home. You cannot use the tax credit if you are married, and your spouse has owned a home in the last three years. Your individual income cannot exceed $125,000 and joint returns cannot exceed $225,000. This really is a great deal for first time buyers.
The second credit is probably less understood and applies to Long Term Homeowners. It is available to homeowner’s who have lived in a house that is their principle residence for at least 5 of the last eight years. You do not have to own a home currently, but you cannot have been in the home for less than 5 years, or vacated the home more than 3 years ago. If it has been more than three years since you owned a home, you should qualify for the First Time Homebuyer’s Tax Credit above, subject to income limitations. The credit is up to $6,500 and like the first time buyers credit is refunded to you through the IRS.
To qualify for either credit, you must go ahead and purchase a home. The deadline to have a contract is April 30th 2010, and you must close within 60 days of the contract. After you have closed, you will use the HUD-1 Settlement Statement from your closing to file for the Tax Credit through the IRS. If you owe money to the IRS, that is going to be paid from any tax credit that is due to you.
Now is a great time to be looking as a buyer. Rates are low and inventory is available. If I can assist you with financing for your new home, don’t hesitate to contact me.
For more information on credit issues go to:
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
What is all the information I keep hearing about a Homebuyer Tax Credit? Currently two tax credits exist for home buyers. They are filed through the IRS with your 2009 Taxes, or as an amended return.
The first is a tax credit for First Time Homebuyers. This credit allows you to receive up to 10% of the purchase price (up to $8,000) when you purchase a home. This blog is not designed to qualify you for the credit, but to give you basic information. You must not have owned a home that was your primary residence within the last 3 years. You cannot use the credit to buy a home from a close relative (parent, grandparent, spouse, or child), or when you inherit a home. You cannot use the tax credit if you are married, and your spouse has owned a home in the last three years. Your individual income cannot exceed $125,000 and joint returns cannot exceed $225,000. This really is a great deal for first time buyers.
The second credit is probably less understood and applies to Long Term Homeowners. It is available to homeowner’s who have lived in a house that is their principle residence for at least 5 of the last eight years. You do not have to own a home currently, but you cannot have been in the home for less than 5 years, or vacated the home more than 3 years ago. If it has been more than three years since you owned a home, you should qualify for the First Time Homebuyer’s Tax Credit above, subject to income limitations. The credit is up to $6,500 and like the first time buyers credit is refunded to you through the IRS.
To qualify for either credit, you must go ahead and purchase a home. The deadline to have a contract is April 30th 2010, and you must close within 60 days of the contract. After you have closed, you will use the HUD-1 Settlement Statement from your closing to file for the Tax Credit through the IRS. If you owe money to the IRS, that is going to be paid from any tax credit that is due to you.
Now is a great time to be looking as a buyer. Rates are low and inventory is available. If I can assist you with financing for your new home, don’t hesitate to contact me.
For more information on credit issues go to:
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, February 8, 2010
Helping Your Children Establish Credit
It is important that your kids establish and learn to manage their credit early. Credit scores affect the ability to get a loan, the cost of insurance, and can even be important in obtaining employment.
So, how do you help your child establish credit? One of the first things is to make them an authorized user on one or two of your credit cards. As an authorized user, that credit will begin to report in their name also. It is not necessary to give them a card, but giving them a card with a low limit can help them learn financial responsibility be giving them responsibility for coming up with the money to pay the bill.
Always make sure that the bill is paid on time, and don’t allow the card to be paid late to “teach” them a lesson. Allowing them to miss payments, will lower their credit and start them out on the wrong foot.
Be careful when co-signing for your children. In most cases, you will not receive the monthly statements and your attempt to help teach them financial responsibility, could actually hurt your credit. When you find out that they are in trouble, it may be too late. If your credit is affected also; it could take months or years to repair.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
So, how do you help your child establish credit? One of the first things is to make them an authorized user on one or two of your credit cards. As an authorized user, that credit will begin to report in their name also. It is not necessary to give them a card, but giving them a card with a low limit can help them learn financial responsibility be giving them responsibility for coming up with the money to pay the bill.
Always make sure that the bill is paid on time, and don’t allow the card to be paid late to “teach” them a lesson. Allowing them to miss payments, will lower their credit and start them out on the wrong foot.
Be careful when co-signing for your children. In most cases, you will not receive the monthly statements and your attempt to help teach them financial responsibility, could actually hurt your credit. When you find out that they are in trouble, it may be too late. If your credit is affected also; it could take months or years to repair.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
Monday, February 1, 2010
Maintaining Your Credit Through a Divorce
http://knoxvilleneighbors.blogspot.com/
While going through a divorce, the last thing on your mind is how it will affect your credit. Your attorney takes the responsibility for making sure that you are legally separated from your spouse. That involves a separation of debt and assets. Typically a judge will issue the final decree and the final divorce document lists the items that you are responsible for, and those that are delegated to your spouse.
While future lenders will use the final divorce decree to eliminate those debts assigned to your ex-spouse from your debt to income ratio, the divorce decree does not protect your credit.
At the time that you applied for joint loans (while you were married) creditors relied on both of you to approve the credit card, car loan, or home mortgage that you received. The divorce decree cannot set aside the creditors right to come after you to recover un-paid debt obtained before you were divorced. Should your ex-spouse fail to make payments on time, or default totally on the loan, this information will be reported on your credit and could affect your credit score for years to come.
So what should I do? Always seek to pay off and close any joint account. Tell your attorney that failure on the part of your ex-spouse to pay their obligations after the divorce could affect your credit. Make your spouse sell, or refinance any items that cannot be paid off; while this may force them to adjust their lifestyle to their current income, it will prevent you from being reported for poor payment history.
I have heard that closing accounts could lower my credit score, is that true? Yes, closing accounts could lower your score, but not nearly as much as finding out a year later that your ex-spouse didn’t make any payments and you owe thousands of dollars in outstanding balances.
If the divorce was particularly bitter, continue to check your credit regularly over the next several years. Your ex-spouse knows more about you than most people. It would not be difficult for them to fraudulently open new accounts in your name. Most credit agencies will allow you to put an alert on your account that requires a phone call to you before new credit is issued.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
While going through a divorce, the last thing on your mind is how it will affect your credit. Your attorney takes the responsibility for making sure that you are legally separated from your spouse. That involves a separation of debt and assets. Typically a judge will issue the final decree and the final divorce document lists the items that you are responsible for, and those that are delegated to your spouse.
While future lenders will use the final divorce decree to eliminate those debts assigned to your ex-spouse from your debt to income ratio, the divorce decree does not protect your credit.
At the time that you applied for joint loans (while you were married) creditors relied on both of you to approve the credit card, car loan, or home mortgage that you received. The divorce decree cannot set aside the creditors right to come after you to recover un-paid debt obtained before you were divorced. Should your ex-spouse fail to make payments on time, or default totally on the loan, this information will be reported on your credit and could affect your credit score for years to come.
So what should I do? Always seek to pay off and close any joint account. Tell your attorney that failure on the part of your ex-spouse to pay their obligations after the divorce could affect your credit. Make your spouse sell, or refinance any items that cannot be paid off; while this may force them to adjust their lifestyle to their current income, it will prevent you from being reported for poor payment history.
I have heard that closing accounts could lower my credit score, is that true? Yes, closing accounts could lower your score, but not nearly as much as finding out a year later that your ex-spouse didn’t make any payments and you owe thousands of dollars in outstanding balances.
If the divorce was particularly bitter, continue to check your credit regularly over the next several years. Your ex-spouse knows more about you than most people. It would not be difficult for them to fraudulently open new accounts in your name. Most credit agencies will allow you to put an alert on your account that requires a phone call to you before new credit is issued.
For more information on credit issues go to:
www.experian.com
www.transunion.com
www.equifax.com
This blog is for informational purposes and is the opinion of the writer. In financial matters always solicit professional advice and legal counsel if necessary.
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