4 Things First-time Homebuyers Should Know About Credit Scores and Mortgage Payments

With the housing market improving, we know you'll be tempted to start looking for a place to call home. Before you start shopping around and looking for a place, let Angel work with you and help you reach those goals. Consider your financial situation before you start shopping around. 

Here are four things every first-time homebuyer should consider:

1. Have a Good Credit Score

The first step is knowing what your credit score is across all three bureaus. When you trust Angel to help you with your financial situation the first thing we do is partner you with a qualified Credit Counselor who will help you discover your credit scores and review your report to see if there are any negatives. Lending standards have tightened since the housing market collapse and our counselors are trained to know what those standard are. They'll not only help you navigate the standards and requirements lenders have, but will also get you on a plan to getting your credit healthy. The minimum score lenders will consider is a 640, a feat we help clients reach every day. 

2. Hard Inquires Could Lower Your Score

When a lender pulls your credit repsort they're going to notice your hard inquiries on your history. Mortgage lenders will examine your history to determine whether your score is up to par after you apply for pre-approval for a home loan. Hard inquiries will drop your score and may last up to 2 years, potentially stopping you from getting approved for a loan. When you enroll in our program, we ask for a commitment from you, not to attempt to get credit cards or anything else that may cause a hard inquiry on your record. There are certain exceptions to this rule and your counselor will help you navigate those rules so we can get you ready to get pre-approved. 

3. Higher Credit Score Means Lower Interest

Many people come to us and say, "but I know a guy who was approved with a 580 credit score." We're not doubting you, but what your friend may not have realized is that a higher credit score, means lower interest. The difference between being approved at 580 and say, 640 may mean the difference between 14% interest and 3% and that's a big deal -especially with a 30 year mortgage. 

4. Be Prepared to Juggle Mortgage Payments with Other Bills

First-time homebuyers should always plan out their budgets with their mortgage in mind. When you enroll in a credit repair program with Angel, your counselor will go over your budget with you to ensure you'll be able to plan properly for you future. 

With these tips in mind, our clients are more prepared to apply and be approved for a home of their dreams. Let Angel help you get ready to purchase your next home. 

The Risks In Maxing Out A Credit Card

 

When consumers sign up for credit cards, they understand the many responsibilities that come with owning that card, and what it means for their credit score. Often, when considering a borrower's viability, credit utilization rates are examined, and generally OK'd if they have low to mid rates that demonstrate proper usage. However, despite the strict adherence to best practices in credit, consumers may be led to max out a line for an emergency or other purchase of services or essentials. Low limits may also hinder spending and result in credit score hits, but in some consumers' cases, it's worth it.

 

When to max out, and what to know
USA Today laid out a couple scenarios in which it might be acceptable to max out a credit card. Emergencies are clear situations in which one may need to max out a credit card to pay for medical expenses, home or car repairs and costs of children. If you're running low on cash and are in between jobs, that's another scenario where maxing out a card could be advisable. One not-so-noted situation to max out in is if you're accumulating points and it may pay off sooner if you make large purchases.

While all these situations may be viewed as times when a card should or could be maxed out, it's centrally important to know the risks involved and the actions to take to prevent or undue damage. Such risks include:

• Damaging credit score: Credit utilization accounts for 30 percent of your score, and if your utilization is thrown too far out of whack, your credit score will show a pursuant drop.
• Triggering a penalty fee: Many credit agreements are couched with a statute that holds if the cardowner defaults on a payment because of maxing it out. This penalty fee allows the creditor to increase interest rates to their highest, often 30 percent.
• Impacting future credit availability: A pattern of maxing out is a dangerous habit to gather, and lenders will likely look at it later on, if you seek new lines of credit, with a wary eye. Getting too deep in maxing out may severely restrict credit available to you down the road.

So why max out, and what to do

Given all the penalties and pitfalls laid out above, one may ask why he or she should consider maxing out in the first place at all. The process of building credit throughout your life, maxing out may allow you to not only repair, but improve on credit.

 

How could hurting your score further when it's already low not be counter-productive when trying to rebuild your credit and raise your score? The short answer is that sometimes it's best to take one or two steps back in the short run so you can go further in the long run, and that in credit rebuilding you're running a marathon and not simply around the block. The longer, and more factual, answer follows.

 

The maneuverability a consumer has in maxing out a card lies in the temporary damage it can do. While payment history leaves a multiyear mark on a credit score, credit utilization delivers only a temporary hit if something goes wrong. In that case, it's of the utmost importance for any consumer considering maxing out their card to pay the charges as soon as they are posted to the account, and not leave it to the last moment when the billing cycle ends and you're in debt.

3 Step Guide To Financing Your Dream Home

Get Your Finances In Order & Crunch Your Cash Numbers

The first time you think about becoming a homeowner is the moment you should start financial planning. Read more »

Check Your Credit (and Repair if Needed)

Lenders will carefully check your credit and will rarely approve a loan for someone with seriously bad credit. Read more »

Secure a Home Loan

Between signing a contract and finally getting your keys, follow through to make sure the loan process flows smoothly. Read more »

Smart Financial Planning Must Come Before Homeownership

No matter what has you looking for a house, whether it's your best friend's new place or a desire to start building equity instead of renting, the first time you think about seriously becoming a homeowner is the moment to start financial planning. 

Angel Debt Solutions advises that you start looking for a house to get an idea of what you're looking for. You want to be financially prepared so you don't fall into the trap of identifying your perfect home -only to realize you can't afford it. 

The most important elements of financial planning before purchasing a home are developing a budget and saving for the new home. Not everyone has the luxury of saving hundreds of dollars a moth to put towards a down payment. For these people, Angel has a debt management program that can help you get your finances in order and help you reach your goals. Your Credit Counselor can even help you find grants as a first time home buyer to potentially save you thousands. 

Financial Planning for Homeownership

When you are ready to consult a lender to find out if you can be approved for a loan, the lender will base a decision on your credit profile, income, assets, job history and debt-to-income ratio.

Your debt-to-income ratio for the lender’s purposes is based on the minimum monthly payment for all of your credit card debt, student loans, car loans and personal loans -compared to your gross monthly income. In many cases the amount a lender will say you can borrow is higher than you may feel comfortable borrowing.

It’s crucial you decide what you think you can afford for your monthly payment and work with that number when you begin searching for a home.

Your comfort level should take into consideration other financial goals you have -saving for child-raising expenses, college tuition, retirement and even things like vacations, skiing or golf. Most of those expenses won’t be part of your lender’s calculation of what you can afford to spend on a housing payment.

Most lenders allow a maximum overall debt-to-income ratio of 43%, and some allow only a 41% ratio. The housing payment portion of your income should be a maximum of 31%, so if your annual income is $60,000 and your monthly gross income is $5,000, then your housing payment should be $1,550 or less.

Housing Payment

Homeowners have extra expenses renters don’t, such as property taxes and homeowners insurance. Your mortgage payment will include those costs as well as the principal and interest on your loan. You may also pay mortgage insurance if you make a down payment of less than 20%.

If you live in a condo or a community with a homeowners association (HOA), you will pay condo or HOA fees separately.

You should also budget for maintenance and repairs on your home, at least 1% of the home value.

Before you become a homeowner, you should create a budget based on your current finances and consider how you can adjust that budget to accommodate extra savings to allow you to buy a home and to afford potentially higher housing payments.

Saving Strategies

There are countless resources for living frugally and finding ways to save on everyday expenses such as your cable bill and groceries, but in order to save for a home you will need discipline to set aside money for the future.

Here are some ways to do that:

• Create a special savings account for your home purchase and have part of every paycheck automatically transferred to that account. Start with as little as $100 if you can afford it so you get used to living on less and then gradually increase the amount.
• Consider saving the difference between your rent and anticipated housing payment. This increase your savings, and you’ll also show a lender an established savings pattern and the ability to afford the housing payment.
• Work extra hours or take on a second job temporarily to increase your income. Even something simple like walking dogs each evening or babysitting can help your savings accumulate more quickly.
• If you get a bonus, a tax refund or a cash gift, deposit it into your home-buying account.

The simple process of creating a financial plan with your Credit Counselor should be the beginning of a long-term plan to buy a house -and to keep it.

Crunching Your Numbers
To start the home buying process, you need to establish a pattern of fiscal responsibility and develop a budget -and you also need to figure out where you will get the cash you need to move from renter to owner.

Angel helps people just like you become homeowners through zero down mortgages every day. The reality for many people is, that they still need to have some kind of down payment saved back in order to purchase a home. In most cases, states, counties and even cities provide free money for down payment assistance. Talk with your Credit Counselor about grants to see if you're eligible.

Home Buying Cash Needs
While renters typically need a security deposit and their first month’s rent, home buying requires cash for several purposes, such as the following:

Earnest money deposit: Your offer for a home should be accompanied by an earnest money deposit to show the seller you are serious about buying their home. The amount of your deposit will vary according to the size of your down payment, local market customs, the value of the home you are buying and market conditions.

Consult your Credit Counselor for advice on how much your deposit should be, but if you plan on making a down payment of 3.5% to 5% you should plan for a deposit of at least 1%, or $2,000 on a $200,000 home.

Down payment: Generally, buyers need to make a down payment of at least 3.5% for a government-insured Federal Housing Administration loan -and at least 5% or 10% for a conventional loan. Some loan programs allow some or all of your down payment to be a gift, but many require that at least 5% or more comes from your own funds.

If you plan to ask relatives for money to help you, it’s important to start that process early so you know exactly how much they can provide. You don’t want to assume you are getting the full down payment of $40,000 on a $200,000 home -and then discover your parents plan to give you only $2,500.

Closing costs: Closing costs vary by your location and your loan program, but you should plan to budget 3% to 6% of your home value for these costs. Your Realtor can try to see if the seller will take on these costs to get the house sold.

Cash reserves: Some loan programs require you to have two or three months’ worth of mortgage payments in the bank as your emergency fund. Even if you are not required to have that amount, you should have an emergency fund to cover at least three to six months -or more- of expenses even after you have completed the home buying process.

Moving costs: Whether you are moving locally or long distance, you will need funds to pay for the move and the associated expenses of settling into a new home.

While you probably can’t come up with an exact figure this early in the home buying process, you should be able to develop a general estimate of your cash needs based on an idea of your price range for a home. For example, on a $200,000 purchase you would need a bare minimum of $16,000:

• $2,000 for a 1% deposit
• $5,000 for the remaining 2.5% of your 3.5% down payment
• $6,000 for 3% closing costs
• $3,000 for a bare-bones emergency fund to cover approximately three months of mortgage payments

Identify Your Sources for Cash
If you don’t have the funds you need in a savings account now, you should identify ways you can accumulate the money you need, like these:

• Getting a second job or working extra hours. Dedicating all the income from a short-term side job can boost your savings quickly.
• Drastically cutting your spending for a few months or longer.
• Finding out the rules about borrowing from your 401(k) or IRA account.
• Asking family members if they can help you with gift funds.
• Check out your options for local and state home ownership programs through your Credit Counselor. 

If becoming a home buyer is something you are serious about, your Credit Counselor will go over options with you and can even help get you on a debt management plan to save money each month. 

Boost Your Credit Score

Easy loans for bad credit borrowers were common amid the housing boom in the early 2000s, but they’re now rare.

If you’re interested in buying a home nowadays, lenders will carefully check your credit and rarely will approve a loan for someone with bad credit.

For that reason, it’s important to check your credit report and your credit score.

Many consumers are surprised by their credit score and many find errors on their credit reports. Carefully review your credit report and focus in particular on negative items to see if there are ways you can address them and improve your credit profile and your access to a mortgage.

Boost Your Credit Score

Your Credit Counselor will go over methods to repair your credit and get you a healthy score. We can help in the following areas:

• Collections and judgments can be solved through our Debt Management Plan.
• Pay your bills on time.
• Reduce your credit card debt and pay more than the minimum each month.
• Do not open new lines of credit.
• Do not close your credit card accounts.

Credit Scores, Lenders & Your Credit Counselor

Your Credit Counselor can be a great source of advice about your credit issues and can tell you what minimum credit score is needed for a particular loan program. Different lenders have different loan standards, so while one lender may reject you with a credit score of 640, another could give you a loan approval.

In general, FHA-insured loans have lower credit score requirements than conventional loans. In addition, the FHA has loan programs making it easier for some people who lost a home in a short sale or a foreclosure to get a new mortgage faster.

While FHA loans can be easier to qualify for if you have damaged credit, the downside of this loan program is you must pay mortgage insurance on the loan, usually for the life of the loan. FHA mortgage insurance is typically higher than private mortgage insurance.

Private mortgage insurance also is automatically cancelled when your loan-to-value ratio reaches 78%.

Conventional lenders base their interest rates on your credit score, among other factors, so if your credit score is above 740, you’ll pay a slightly lower interest rate than someone with a credit score of 700.

Lenders look at many factors when evaluating you for a mortgage loan, including your debt-to-income ratio, your income and assets, how much your down payment will be and your job history. These compensating factors can sometimes help you overcome a slightly low credit score, but your best chance for a loan approval is to improve your credit score through our Credit Repair Program. 

Secure Your Homeloan

There are two situations for securing your home loan. Either you already have a credit score of 640 and met the requirements or you had your credit repaired and worked with a counselor to get your credit healthy. Once you have the score lenders are looking for and you've discussed the purchase with a lender, you're not out of the woods yet. 

Until you get to the settlement date and have the keys to your new home in hand, you still need to be vigilant about your finances and keep in touch with your real estate agent, the title company and -most of all- your lender: your home loan may still need attention.

From Pre-approval to Final Approval of the Home Loan

When you consulted a lender and obtained a pre-approval letter for a home loan, you may have thought your loan application was complete -but now that you have a contract, the real application must be processed.

Hopefully, your lender already went through the step of obtaining documentation from you -of your income and assets, bank statements and W2s, and an authorization to request your federal income tax returns. If not, you will need to gather all your financial documents now and provide them as soon as possible to your lender.

Even if your pre-approval included full documentation, you’re likely to need to give a lender updated paperwork such as your latest pay stubs, particularly if your pre-approval was several months ago.

The second part of your loan application depends on an appraisal of the property you are buying. Every lender needs an appraisal to understand the underlying value of the property, which is collateral for your mortgage. It’s up to you to pay for the appraisal but the lender will choose the appraiser.

If the appraisal meets or exceeds the price you have offered for the home, that piece of your loan application is complete; but if the appraisal comes in too low, you will only be allowed to borrow up to the maximum of the appraised value -minus your down payment.

In other words, if the appraiser says the house you want to buy is worth $200,000 and you intend to make a down payment of 10%, the lender will only approve a maximum loan of $180,000. If you and the seller have agreed on a higher price for the home, such as $215,000, you will either need to renegotiate the offer or come up with the extra cash to make up the difference.

Follow Your Lender’s Lead

During the interim period between the signing of the contract and settlement date, you will have several responsibilities to make sure your mortgage is in place when you are ready to close.

• Respond immediately to all lender requests: Lenders often need more information from you while your home loan is being processed. Even if it seems excessive, make sure you provide everything needed in a timely fashion.
• Keep track of all deposits and withdrawals: If you have any unusual deposits other than your paycheck, you will need to provide a paper trail of where the money came from, so it’s best to avoid any major financial moves at this point. If you must move money around for your home purchase, keep excellent records and be ready to provide them to your lender.
• Maintain your credit profile: Don’t apply for new credit, spend anything on your credit cards or close any credit accounts -because any one of these moves could hurt your credit score or change your debt-to-income ratio. Wait until after the closing to make any purchases for your new place.
• Communicate with everyone: Your real estate agent, your title company and your lender should be busy behind the scenes getting ready for settlement day, so you should stay in touch with them often to see if everything is on track -and if they need anything from you.
• Following these simple steps makes it much more likely that your loan will be ready when you are ready to pick up your keys.

Security Deposit Problems? Here's How to Beat Your Landlord in Small Claims Court

There's a certain exhilaration that comes with suing your landlord and winning. Too often, people think that it's not worth the legwork to get back money they're owed from a security deposit. In fact, it’s much easier than you might think. So how do you take your landlord to court and come out on top?

The Lease and the Law

Most attorneys, note that landlord disputes are generally just a simple case of contract law. 

The contract -the lease- is going to govern in this case.

Beyond just what's in the lease, you need to consult state and local laws to see what your landlord's obligations are. 

Most states require the landlord to keep the property in a habitable condition -running hot and cold water, electricity and heat. If you don't have those, you can sue your landlord.

What’s more, in some states, if he fails to provide them, it might invalidate the entire lease.

Document As Much As You Can

If you're trying to get a security deposit back, take a lot of photos. This includes taking pictures of every room when you move out. In fact, with the prevalence of smartphones, you might be better served taking video footage of the walk through. Even if your landlord doesn't do one of those with you, you should do your own to present to the court if things get that far.

Save All Communication

One of the biggest mistakes people make in landlord disputes is not keeping a paper trail of their communication. You want to show that you made every effort to resolve this without going to court.

This means communicating through email, but also through certified, registered mail. The former works for basic communication, the latter is for when you start ratcheting up the forcefulness of your request to get your deposit back.

Generally, the law requires you to give your landlord notice in the form of a letter, If they fail to respond in a certain number of days, then you can take them to court.

What's more, you want to keep everything that your landlord sends to you in a binder. You don’t want this to become a case of "he said, she said." Keeping track of all communication between you and your landlord is the best way to do this if you have to take things into the courts.

Going to Court Against Your Landlord

Most security deposits are just going to go to small claims court. 

You’d need a pretty big security deposit to move this into municipal court.

This comes with two advantages. First, you're not going to have to hire a lawyer. Second, a lot of times your landlord won't even bother to show up, making it far easier for you to make your case. Still, you want to come with as much information as you can on the day of your case. More than this, both of our experts concurred that doing everything the right way is of paramount importance. You'll need to bring your lease, any documentation that your landlord violated the lease, communication between you and your landlord and finally images and video from your own walk through.

When it comes time to talk, you want to stick to pertinent facts of the case. You're going to be one of dozens of cases that the magistrate or judge will be hearing that day. You want to get to the point. Say what the lease says, how you stuck to it and how, if relevant, the landlord violated the lease. 

You want to make sure that you have evidence and that you do a good job of presenting it. It's also worth noting that judges in these cases tend to be pretty reasonable.

Finally, present what you can to prove that you tried to resolve the situation without going to court. This is where all of your documentation of communication between you and your landlord is going to come into play. If you've made repeated attempts to get your deposit back from your landlord, not only will the judge side with you: in some states, there will be punitive damages involved.