Credit where credit is due

One of my favorite Chattanooga mortgage lenders turned me on to a new resource the other day. I’m looking to re-finance a mortgage on one of my houses here in Chattanooga myself and Richard recommended that I sign up for CreditKarma.com so that I could check my credit and get a score without an inquiry showing up on my file. It’s similar to MyFICO.com except that it’s freeeeeeee!

St. Elmo Chattanooga Real EstateThere was a time when you had to shell out big bucks to get your credit score (where big bucks=about $20) but you’ve got some options now. Some credit card companies offer you scores but the ones I’ve seen only give you a score from one bureau. Credit Karma gives you two. There can be huge discrepancies from one bureau to another so it’s nice to have a couple to look at, compare and contrast.

Before you start the process of buying a home in Chattanooga, you’ll want to start checking your credit and getting rid of errors. Credit Karma can even give you some recommendations but since they don’t necessarily know what you’re going for, I’d take those with a grain of salt. Once you’ve cleared up any actual mistakes in your credit file, I’d talk to a lender for ideas on how to strengthen your credit rating in preparation for buying a house.

There is no such thing as a free lunch. It looks like Credit Karma makes its money by selling you on credit cards and other financial products. For straight up credit histories without scores, I’d still go with AnnualCreditReport.com, the official site to get your free report annually – as the name implies. I have to say, though, that Credit Karma does a great job of being clear and user friendly. And of course, if you want to see your scores, you’ll either need to pony up some cash or bite the bullet and give away a little information to a company like Credit Karma.

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PMI – Private Mortgage Insurance

Lots of acronyms get thrown around when you’re talking to a lender. Everything from DTI’s and LTV’s to PITI and UFMIP. PMI (AKA, MIP) is just one of an alphabet soup of terms that you should know.

What is PMI?

It stands for private mortgage insurance. You’ll also sometimes hear of it as MIP or mortgage insurance premium. They’re basically the same thing. It’s insurance that insures that you, the buyer, will actually pay back the loan. It pays out if you don’t.

Who pays for private mortgage insurance?

Short answer: you do (of course!). The long answer is that there may be a portion added onto your mortgage when it’s first taken out. It goes that way with FHA loans. That portion is referred to as UFMIP (up-front mortgage insurance premium). There will also be a part that is added onto your payment each month.

PMI, Chattanooga real estateWho benefits from the MIP?

Downer alert: Sadly, not you. Having insurance in the name sounds like you might get something out of it if tragedy strikes and you can’t pay your mortgage. In this case, you’re paying for insurance that helps out the mortgage company if they end up having to foreclose on the property. It won’t in any way keep them from taking your house away.

Is there any way to get out of paying a mortgage insurance premium?

Yes! Buy a house using conventional financing and put at least 20% down. Unfortunately, most first time buyers don’t have the cash for that but if you’re selling another house and plan to plunk down the proceeds you get from that, you might be able to swing it.  If you can’t do that at the time of purchase, you can make extra payments toward the principle and once it’s paid down to a 78- 80% LTV (more acronyms! this one means loan to value ratio) you can request that the PMI be cancelled. If values are going up in your area or you’ve made significant improvements and you think your house has appreciated to the point that your mortgage balance is 80% or less of your home’s new value, you can talk to your mortgage holder and request a new appraisal (which you’ll pay for). The bad news for FHA buyers is that this doesn’t apply. Some recent rule changes at FHA mean that you’re stuck paying the MIP for the life of the loan, up to 30 years.

 

So when you’re thinking about monthly payments and what you can afford to spend on your new house, be sure to include not just the principle, interest, taxes and homeowner’s insurance (that’s the PITI I mentioned up there at the top) but also the PMI. If you have any questions about this or any part of buying a house in Chattanooga, contact me and I’ll be happy to help!

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Can you really buy a house with only $100 down?

Chattanooga Real EstateOne of the very best-est things about buying a HUD home as an owner occupant is the $100 down payment program available with FHA financing.

Since 80/20 mortgages went the way of the dinosaur, there have been only a few options for those who don’t have the cash for a traditional 3.5-5% down payment. One of those is to purchase a HUD home via FHA. The only down side is that the inventory of houses available is fairly small. This isn’t something that can be done with just any house, the home must be a HUD-owned foreclosure.

Unfortunately, the powers that be don’t do a very good job of promoting this program. That’s one reason why you want an agent – like me! – who is experienced in dealing with the paperwork and (unfortunately, rather frequent) policy changes of these programs.

Besides the down payment, there are also closing costs and pre-paid items that go into your escrow account (like some money toward the taxes and insurance) that you’ll have to pay at closing. So it will take more than $100 from start to close. The good news is that HUD will pay your closing costs up to 3% of the purchase price – which means that if you’re paying $100,000 for the house, they’ll ante up $3,000 for you.

HUD also requires that you give them an earnest money deposit of $500 for houses with a purchase price of $50,000 or less. You’ll need to plunk down $1,000 for a home that’s more than that. For most houses that are at least $100,000, your earnest money combined with the 3% will probably cover everything (talk to your lender for specifics).

If you’re one of the many who can afford to own your own home but can’t afford the down payment to buy your own home, HUD’s $100 down program might be a great way for you to experience the joys and tribulations of owning your very own piece of America.

Click to see which homes (probably) qualify for this program – available HUD homes in Chattanooga or contact me for more information!

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How 3% can make all the difference

{{You’re gonna have to hang in there with me, this one definitely gets filed under ‘boring but important’}}

Today, HUD announced new rules for FHA mortgages that will go into effect in the near future (“summer” whatever that may mean). Those who don’t eat, breathe, and live real estate finance like I do may not know this, but FHA has become the go-to loan for most borrowers, especially first-timers and lower income, but really for everyone who doesn’t have 20% to put down.

Here are the proposed changes:

Anyone with a credit score under 580 is required to put down 10%

In practice, most banks aren’t lending to anyone with a score of less than 620 these days anyway so this one won’t have much of an impact.

The up front mortgage insurance is being raised from 1.75% to 2.25%

For a $100,000 loan amount, this means that the house would cost you an extra $500 which can be financed into the loan. Again, not great but not a huge deal in the grand scheme of things.

FHA FinancingSeller concessions limited to 3%

This is the one that gives me heartburn. What’s a seller concession, you ask? In most cases, it’s your closing costs. With FHA, you can get a loan with as little as 3.5% down. For first time buyers without a lot of savings, that means you can buy a $100,000 house with not much more than $3,500 out of your pocket, assuming the seller pays your closing costs. That last part is the kicker. Currently, the seller is allowed to contribute up to 6%. And 6% is plenty when you are talking about a $100,000 loan. You aren’t usually going to go over $6,000. But you are probably going to go over $3,000, the new limit in this scenario.

And if you are looking at an even smaller amount, say $50,000?  Three thousand dollars would probably cover your closing costs so you could buy a $50k house for as little as $1,750 out of pocket. Now, with the seller only contributing $1,500 toward your closing costs, that almost doubles what you’re going to have to pull out of the old tin can in the back yard. That’s HUGE!  Anyone looking to live in a $50,000 house – they’re rare, but they do exist in Chattanooga – probably doesn’t have that extra $1,500.

And that’s why I don’t like this change. Looking at houses in the $200,000+ range? You probably won’t notice a difference. But all of those first time buyers who are near and dear to my heart (yes, it’s far more gratifying to sell someone their first house), are to put it bluntly, are getting screwed.

So to all those who need to use FHA financing and who don’t have an extra couple thousand dollars in your mattress, now just became an even better time to buy. Don’t wait until ‘summer’!

Click to search Chattanooga houses for sale.

Disclaimer: all those closing costs number I’m throwing around up there don’t mean that I (or anyone else) is offering a loan with those exact costs, those are big round numbers to illustrate the point.

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Bargain hunting for move up buyers

Heather St East Ridge Real EstateWe’re hearing a lot about first time buyers these days given the soon-to-expire tax credit but what about those of us who already have a house?

Would you like another one? A bigger one? A fancier-schmancier one? Do you have two teenagers? Do you therefore long for a house with 3 bathrooms instead of the constantly clogged 2 you now have?

Well, wait no more my friends! What would you say if I told you that you could move up into a bigger, nicer home for not too much more than you are paying now?

What, what WHAAAA?? How can that be, Jules?

Take a little gander at my last market report for Hamilton County. Go on, click over there, I’ll wait ’til you get back.

Well, did you notice anything? Like maybe that houses in the price range you’d sell yours for are moving. Not like the proverbial hotcakes, but moving nonetheless. Did you also notice that homes in the price range you’d be looking for are sitting, moving more like the proverbial molasses? And maybe you’ve been looking at the interest rate that shows up every month on your mortgage statement. And maybe you’ve even been thinking about refinancing down from that 7.5% you’re paying now. Because there are SCREAMING deals on interest rates these days (think high 4’s, low 5’s, seriously, this is not something I would joke about).

Rowe Rd Missionary Ridge Real EstateSo here’s what you should do (in my ever so humble opinion). Sell that house of yours. Are you going to get what it would have sold for 2-3 years ago? No, probably not. But if it’s in the under $150,000 range, and it’s reasonably updated and fairly priced you’ve got a good shot at selling it pretty quickly for not too much less than 2006 prices. The lower to mid range of the Chattanooga real estate market hasn’t really taken much of a beating. At least not anything like you’re hearing on the national news. You’re going to take that equity from the house you are selling (you do have some equity, right?) and put it down on that new, bigger, fancier-schmancier house. You know, the one with the value that has fallen a good bit more than yours has just by virtue of it being more expensive and out of that first time buyer range. And you are going to get it at a lower interest rate and therefore you might just end up spending not that much more than you are paying now.

Are you a numbers kinda person? Here’s how it all pans out: You paid and financed $125k for your house in 2000, it was worth about $150k in 2006; now we think it might sell quickly for a net of about $130k.  You are paying $874/mo on a current loan balance of $108k at 7.5%. You take the $22k in equity you have and put it down on a house selling for $225k (that would have sold for $275k in 2006) and your new payment is $1074/mo on a balance of $203k at 4.875%. Did you ‘lose’ $20k in equity since 2006? Yes. But you also ‘gained’ $50k in equity on your new place.

Because I’m a realist I like to point out the downsides to all my nefarious schemes. Contrary to my detail oriented self, I’m painting with a broad brush here. So take the total cost of ownership into account before you hit the sell button.

My other disclaimer? The home values I used above are gut feeling numbers that I can’t back up with hard statistics. In real estate, the hard numbers are always averages and a single, unique home can’t be valued on an average. Just sayin’.

Click here to see Chattanooga metro area homes for sale for $130,000, and here to see what kind of real estate you can get for $225,000.

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My credit is messed up, now what? Part I

Dollar SignSo maybe you went a little crazy in college and racked up some debt?

Or maybe you hit a mid life crisis and went a little crazy and racked up some debt?

Perhaps you got hit with some medical bills and racked up some debt?

Maybe you’re the guy who just puts his credit card statement on the counter and then forgets it.

No matter how you may have gotten there, most people find that they’ve done something to mess up their credit at some point in their lives. And hey, even if you didn’t, it could be messed up without any help from you at all.

The thing is, if you want to buy a house, you’re going to need a decent score. Gone are the days of the la la la la I can’t hear you and don’t want to know anything about you loans.

So what can you do to fix what you’ve messed up?

Step 1: Know thyself

You can’t fix it if you don’t know it’s broken.  Credit bureaus have to give you one free copy of your own credit report every year. If you have applied and been turned down for credit they have to give you another one. Don’t get caught up in the catchy tunes on the commercials. The official site to get your report is www.annualcreditreport.com. You can usually download your report immediately. Make sure you get all three – there are almost always discrepancies from one to another.  Make sure that any accounts that you have closed say so on your report. Verify the credit limits listed and if there is any derogatory information, find out if it is legit. Any errors that you find, and you will find errors, can usually be disputed online.

Step 2: Know thy score

Once you’ve cleaned up any mistakes on your credit report , check in with www.MyFICO.com and purchase your scores from all 3 bureaus. It will cost you about $15 for each one – search for promo codes online first and you may get lucky and find a discount. Other sites will sell you scores but they aren’t always usually true FICO scores (the number lenders use to mercilessly rank you against your peers). This will give you a baseline and tell you whether or not you’re going to be working on this for a long time or a little time. A side benefit of MyFICO.com – there is a forum there with credit geeks galore who love to dish out advice. You may need to take some of the tips with a grain of salt but believe me, these people have been there and done that. Most of them came from credit hell and have clawed their way back to credit purgatory or even credit heaven. They luurrrrvvvve to talk credit scores.

Dollar AmountsStep 3: Know thy bills

If you have a payment due Pay. It. On. Time. Every. Single. Time.  No. Exceptions. The fastest way to watch your credit score circle the toilet is to miss a payment. Don’t do it. Ever.

Really. Never.

Never, ever, ever.

Come back later and read whether or not you should close your credit cards as well as what you should do about outstanding collection accounts.

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Contact me for more information about anything you see on this blog.

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