Credit scores have always been important and they are becoming even more important than ever before. We all know that lenders and creditors use your credit score to decide whether or not to give you a loan or a revolving charge card. In fact these same decision makers use your credit score to determine what interest rate you’ll receive should they decide to extend the financing to you.
Did you know that your credit score could keep you from getting an apartment or a rental home? It could also prevent you from landing that new job. Landlords and employers are making much wider use of an applicant’s credit score to determine whether or not to make that lease or offer that job. So, how does one go about improving their credit scores?
First, pull your credit reports. Once each year everyone is allowed to pull all three of their credit reports (Transunion, Experian, Equifax) from www.annualcreditreport.com. This is a free site. There are businesses with sound alike names trying to sell you a service or products all the while offering you a free credit report that you may obtain for free, so a bit of care is advisable.
Once you have your credit reports, go through them carefully looking for serious errors. A serious error is not an incorrect or misspelled address, an old or incorrect employer, or a slight misspelling of your name, or a variation of your name. Instead, examine the past seven years for accounts that are not yours. These accounts could be negatively impacting your scores. Also look for inaccurate late payments or defaults. These are definitely harming your credit scores. Lastly, look for the number of inquiries. These may or may not be harmful to your scores, but it’s also a good idea to see who is checking your credit, or who is checking up on you.
If you find serious mistakes it’s time to take action. Dispute them with the specific bureau on which they appear. Write letters making reference to specific creditors; make the letter as clear as possible. The individual bureaus will notify the creditor/lender of your dispute and wait for their response. If they do not respond within a reasonable amount of days, the bureaus will correct your report and your scores should improve.
Sometimes creditors respond to the bureaus that the report is accurate. In this case (and if you still challenge the veracity of the report) you may need the services of an attorney. A $200 letter is definitely cheaper than thousands in higher interest payments.
Second, evaluate how you are using your credit cards. The rule of thumb is to keep balances well below the maximum limits. A better rule is to keep balances below 30% and to see maximum score improvement, keep balances below 10%. Also it is good to note that the credit bureaus do not give extra points for paying off a credit card balance every month. Their evaluation is based on a comparison of balance between the previous month and the current month.
Third, closing accounts can really damage your scores. It is best to leave all accounts opened and in place until you get your credit scores where you want them. After that you can begin closing accounts; but even then it’s a good idea to close them one at a time and to wait several months before closing the next account.
While trying to improve your scores, don’t open new accounts. Each time you open an account you risk damaging your scores. It is best to wait until you get the financing you want, or your scores are where you want them to be before opening any new accounts. Of course if you have no accounts and you are trying to improve your scores, opening new accounts makes sense.
Boosting your credit scores is not impossible, but it does require some strategic thinking, planning and steps of action. And the earlier you begin, the quicker you’ll be able to take advantage of the benefits higher scores will bring your way.
Friday, October 9, 2009
Wednesday, September 30, 2009
Real Ethics in Real Estate Transactions
Recently someone said I should write an article on the need for increased real estate ethics. I told them, “There’s no such thing as real estate ethics”. After a moment to let that sink in, I finished my comment. “There is only ethics.” We become our own worst enemy when we live under the assumption that every situation allows for its own code of behavior. For many, our ethics become malleable to a situation instead of our response to the situation becoming malleable to our established ethics.
Every real estate transaction potentially involves at least a dozen different parties. Two realtors and their brokers, the appraiser, the home inspector, the pest inspector, the mortgage provider and the national lender, the title company, a survey company, a well and septic inspection and a contractor to affect any necessary repairs. We all have heard of or experienced horror stories involving straw buyers, forged income documents, shoddy repairs, and grossly inaccurate home disclosure documents. Is it any wonder that buyers and sellers express an anxiety level that is off the charts?
Every participant in a real estate transaction has undergone some level of training, whether formal or informal, and each of these professions has at a minimum, annual “continuing education” programs that in most cases is required. Most of these remedial courses contain a small section on ethics for their particular business. The trouble is most people settle for a level of ethics that simply “keeps them legal”. This then becomes the standard of measure which everything they do in their business must pass.
But is this standard too low? Is it enough to do our jobs with the aim of performing only what is legally required, or do we need to raise our sights to some higher ground?
Think with me for a moment the difference that would be made if everyone in your next real estate transaction operated under one simple rule. “I will treat you in the same way I would want to be treated; and I will handle your business the way I would want someone to handle mine.” That’s it. The Golden Rule applied to real estate transactions. What would such a transaction look like?
Appraisals would portray accurate home values. In recent years one of the primary reasons home values shot up was because of inflated appraisal reports. As a result the entire appraisal industry is currently under close scrutiny and the natural response is paranoia. Many appraisals report an artificially low home value. This is because appraisers don’t want to risk losing their license. But left unchecked, this practice could prove just as potentially damaging to the real estate industry as was the practice of inflating home values.
Home inspections are a critical part of any real estate transaction with both buyers and sellers anxiously awaiting the inspector’s report, but for very different reasons. If the report reveals repairs, the sellers will have to pay and the buyers will demand that the repairs be made correctly and be performed by a licensed contractor. I have personally experienced customers who have closed on a home only to find out that the heating and air system that passed inspection only a few months prior now needs replacing.
Mortgages are a necessity for most home buyers. Investigations have shown that in many cases uneducated home buyers were steered into risky adjustable rate loans that now place them in jeopardy of losing their houses. The industry is filled with stories of surprises at closing that involve much higher interest rates and inflated closing costs. The buyers have already removed everything out of their old home while the workers wait for closing to move their belongings into their new home. They have few options but to sign the papers at the higher interest rate.
It’s a nice thought that everyone would conduct their business and personal lives under the same code of ethics. But how can this be accomplished? How is possible for the Golden Rule to become the standard of ethics? How can this be made the bar under which everything must pass? Let me suggest that when the cost of doing what is right exceeds the price we are willing to pay that we make the difficult choice to pay the price and treat others better than we would want to be treated. This is a great concept that almost everyone believes is true, all that is lacking is the will to implement its practice into our lives. Will you be the first to commit to living by this one simple rule?
Every real estate transaction potentially involves at least a dozen different parties. Two realtors and their brokers, the appraiser, the home inspector, the pest inspector, the mortgage provider and the national lender, the title company, a survey company, a well and septic inspection and a contractor to affect any necessary repairs. We all have heard of or experienced horror stories involving straw buyers, forged income documents, shoddy repairs, and grossly inaccurate home disclosure documents. Is it any wonder that buyers and sellers express an anxiety level that is off the charts?
Every participant in a real estate transaction has undergone some level of training, whether formal or informal, and each of these professions has at a minimum, annual “continuing education” programs that in most cases is required. Most of these remedial courses contain a small section on ethics for their particular business. The trouble is most people settle for a level of ethics that simply “keeps them legal”. This then becomes the standard of measure which everything they do in their business must pass.
But is this standard too low? Is it enough to do our jobs with the aim of performing only what is legally required, or do we need to raise our sights to some higher ground?
Think with me for a moment the difference that would be made if everyone in your next real estate transaction operated under one simple rule. “I will treat you in the same way I would want to be treated; and I will handle your business the way I would want someone to handle mine.” That’s it. The Golden Rule applied to real estate transactions. What would such a transaction look like?
Appraisals would portray accurate home values. In recent years one of the primary reasons home values shot up was because of inflated appraisal reports. As a result the entire appraisal industry is currently under close scrutiny and the natural response is paranoia. Many appraisals report an artificially low home value. This is because appraisers don’t want to risk losing their license. But left unchecked, this practice could prove just as potentially damaging to the real estate industry as was the practice of inflating home values.
Home inspections are a critical part of any real estate transaction with both buyers and sellers anxiously awaiting the inspector’s report, but for very different reasons. If the report reveals repairs, the sellers will have to pay and the buyers will demand that the repairs be made correctly and be performed by a licensed contractor. I have personally experienced customers who have closed on a home only to find out that the heating and air system that passed inspection only a few months prior now needs replacing.
Mortgages are a necessity for most home buyers. Investigations have shown that in many cases uneducated home buyers were steered into risky adjustable rate loans that now place them in jeopardy of losing their houses. The industry is filled with stories of surprises at closing that involve much higher interest rates and inflated closing costs. The buyers have already removed everything out of their old home while the workers wait for closing to move their belongings into their new home. They have few options but to sign the papers at the higher interest rate.
It’s a nice thought that everyone would conduct their business and personal lives under the same code of ethics. But how can this be accomplished? How is possible for the Golden Rule to become the standard of ethics? How can this be made the bar under which everything must pass? Let me suggest that when the cost of doing what is right exceeds the price we are willing to pay that we make the difficult choice to pay the price and treat others better than we would want to be treated. This is a great concept that almost everyone believes is true, all that is lacking is the will to implement its practice into our lives. Will you be the first to commit to living by this one simple rule?
Friday, September 25, 2009
Senior's Purchase New Homes Make No Payments
Right here in Edmond and all around the nation, Seniors are downsizing to smaller homes making the purchase with a mortgage that requires no monthly payment for the remainder of their lives.
It’s called a Reverse Mortgage and it has become more popular than ever before, especially with Seniors who are selling their larger homes and opting to purchase newer smaller homes to gracefully age in place. This is exactly what Lydia Cross (not her real name) is doing.
I met Lydia just this week after she had spent the better part of three weeks working with a local bank to get financing for a new home. Her existing home was too large and in truth, too opulent for her needs. Five years ago Lydia’s husband passed away and left her in good financial shape. She purchased the larger nicer home to entertain her friends and family. Lydia is 72 and after experiencing significant health problems earlier this year, she’s ready to simplify life.
She put her house on the market and it sold rather quickly. In the meantime Lydia had found another home that better suited her needs and made an offer to purchase which was accepted. About the first of September she signed contracts on both houses and spent the better part of three weeks working with a local bank to get financing. The bank exhausted every avenue to secure the financing Lydia needed and only after visiting with her financial planner was she directed to call our office.
We examined the Reverse Mortgage from every angel and Lydia was convinced that this was not only the only way for her to get the financing she needed, as it turned out, it also helped her maximize cash flow for her remaining years. Here’s how her scenario works.
First Lydia will receive considerable proceeds from the sale of her current home. Because every Reverse Mortgage is custom fitted to each Senior’s needs, she will need to bring $103,000 to closing to cover down payment and closing costs. The purchase price of her new home is $305,000 so her new which leaves her a new loan amount of $202,000.
Her fixed interest rate for the rest of her life is 5.65%, a rate just slightly higher than conventional 30 year rates. If she were to take out conventional financing for this amount at 5.25% her monthly principal and interest payment would be $1,115.45 but with the reverse mortgage, Lydia can live in her new home and never make a monthly payment for as long as she lives. I explained to Lydia that when she passes, her estate has 12 months to settle the mortgage by either selling the home, or securing replacement financing.
But Reverse Mortgages have a few associated costs that can be surprising if they are not anticipated. The first is the up front mortgage insurance fee. A Reverse Mortgage is an FHA loan and as such like all FHA mortgages has a mortgage insurance premium attached to the front of the loan. This fee is calculated as 2 percent of the maximum amount that can be borrowed plus a 0.5 percent annual premium. For Lydia this added $6,100 to her closing costs.
Another sizeable fee is the servicing set aside fee. Each Reverse Mortgage charges either a $30 or a $35 a month service fee. This amount is multiplied by the number of month until the borrower reaches the age of 100. For Lydia this was a total of $4,730. This amount is not added to the closing costs, instead it is set aside out of the equity of the home, and the unused amount is returned to the estate when the note is settled.
Closing costs are the most controversial part of the Reverse Mortgage discussion. For some Seniors it is the sticking point that finally deters them from pursuing the idea any further. For others it is a necessary part to realize the opportunity of living out their years with fewer liabilities and a greater cash flow to better meet their needs. Before making your decision about a Reverse Mortgage, consult your financial planner and a Reverse Mortgage specialist.
It’s called a Reverse Mortgage and it has become more popular than ever before, especially with Seniors who are selling their larger homes and opting to purchase newer smaller homes to gracefully age in place. This is exactly what Lydia Cross (not her real name) is doing.
I met Lydia just this week after she had spent the better part of three weeks working with a local bank to get financing for a new home. Her existing home was too large and in truth, too opulent for her needs. Five years ago Lydia’s husband passed away and left her in good financial shape. She purchased the larger nicer home to entertain her friends and family. Lydia is 72 and after experiencing significant health problems earlier this year, she’s ready to simplify life.
She put her house on the market and it sold rather quickly. In the meantime Lydia had found another home that better suited her needs and made an offer to purchase which was accepted. About the first of September she signed contracts on both houses and spent the better part of three weeks working with a local bank to get financing. The bank exhausted every avenue to secure the financing Lydia needed and only after visiting with her financial planner was she directed to call our office.
We examined the Reverse Mortgage from every angel and Lydia was convinced that this was not only the only way for her to get the financing she needed, as it turned out, it also helped her maximize cash flow for her remaining years. Here’s how her scenario works.
First Lydia will receive considerable proceeds from the sale of her current home. Because every Reverse Mortgage is custom fitted to each Senior’s needs, she will need to bring $103,000 to closing to cover down payment and closing costs. The purchase price of her new home is $305,000 so her new which leaves her a new loan amount of $202,000.
Her fixed interest rate for the rest of her life is 5.65%, a rate just slightly higher than conventional 30 year rates. If she were to take out conventional financing for this amount at 5.25% her monthly principal and interest payment would be $1,115.45 but with the reverse mortgage, Lydia can live in her new home and never make a monthly payment for as long as she lives. I explained to Lydia that when she passes, her estate has 12 months to settle the mortgage by either selling the home, or securing replacement financing.
But Reverse Mortgages have a few associated costs that can be surprising if they are not anticipated. The first is the up front mortgage insurance fee. A Reverse Mortgage is an FHA loan and as such like all FHA mortgages has a mortgage insurance premium attached to the front of the loan. This fee is calculated as 2 percent of the maximum amount that can be borrowed plus a 0.5 percent annual premium. For Lydia this added $6,100 to her closing costs.
Another sizeable fee is the servicing set aside fee. Each Reverse Mortgage charges either a $30 or a $35 a month service fee. This amount is multiplied by the number of month until the borrower reaches the age of 100. For Lydia this was a total of $4,730. This amount is not added to the closing costs, instead it is set aside out of the equity of the home, and the unused amount is returned to the estate when the note is settled.
Closing costs are the most controversial part of the Reverse Mortgage discussion. For some Seniors it is the sticking point that finally deters them from pursuing the idea any further. For others it is a necessary part to realize the opportunity of living out their years with fewer liabilities and a greater cash flow to better meet their needs. Before making your decision about a Reverse Mortgage, consult your financial planner and a Reverse Mortgage specialist.
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