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Improving Your Credit Score to Buy a Home

by Karen Picarello

It is possible to get approved for a home loan with fairly poor credit, but you won’t get a low interest rate. If your credit is below 580, you’ll also need a larger down payment. Basically, it’s better to start working on your credit now, so your score can be as high as possible when you apply for a loan and make an offer on a home.

5 Ways to Improve Your Credit Score to Buy a Home

1. Make Payments On-time

One payment made 30 days late can greatly impact your credit score, sometimes by as much as 100 points even if your other accounts are all paid on time. If you aren’t good at remembering to pay on time, you aren’t alone. But don’t let this ruin your score. Set up automatic payments or schedule payment reminders in your smartphone. The credit reporting agencies don’t care why you are late, and late payments can remain on your credit report for years. If you do make a payment late, and it is for extenuating circumstances, see if you can get it removed. Some companies won’t report to a credit agency until you are over 30 days late, but if you are late for a non-emergent reason, you may have difficulty getting a lender to remove the event. Make sure you are polite.

2. Pay the Balance on Everything Possible

If you are paying everything on-time, but your credit score isn’t improving, it could be because of your balances. Your balances should only be using a certain percentage of your available credit. Generally speaking, you only want to be using 30 percent of your available credit, so pay down some credit cards, and watch your scores rise.

3. Sign Up for a Credit Score Alerts

One of the scariest things about credit is that you don’t know what your score is unless you check. That is why it is so important to sign up for alerts. This way, you’ll see if your score drastically changes, and you can take action as soon as possible if there is an error or if someone steals your identity.

4. Check Your Bank Account Regularly

Being financially aware can help to improve your credit score by ensuring you have enough money in the bank to cover expenses. Look at your bank account daily. This way, you’ll see and understand any erroneous charges. You’ll also see any subscription services that you may not be using anymore, so you can save money.

5. Set Up a Savings Account

Lastly, keep at least three months of expenses in a savings account. If you have your identity stolen, and your checking account is hacked, you could be in a lot of hot water while you wait for it to be resolved. If it is caught early, a bank or credit card company might reverse the charges within a couple weeks, but that savings account will keep you from missing any payments or overdrawing your account.

Is the Phoenix Housing Bubble About to Burst?

by Karen Picarello

What is a housing bubble?

A housing bubble occurs when homes are overvalued for no real reason, very much like the inflation of money. It is a problem because housing becomes unaffordable. Demand sparks the bubble, and as people continue to buy at higher prices, the speculation that prices will continue to grow perpetuates further escalation.

How is lending a factor?

Lending can play a huge role in a housing bubble. If lenders approve loans to people who are unable to afford them, people live beyond their means and struggle to pay their mortgage. Interest rates also play a role in home ownership, as lower interest rates increase the demand for homes. If too many people are living in homes they cannot afford, they default on their loans. This eventually pops the housing bubble, and the market crashes.

Upside down mortgages

As the housing bubble popped in 2008 and home values declined, many people ended up being upside down in their mortgages. This means you owe more than your home is worth.  People couldn’t afford their homes, and they couldn’t sell them in hopes of paying off their mortgage because their homes were no longer worth as much. This resulted in an entire economic downturn for the country, and it went into a major recession.

Somebody always wins during a bubble.

If the Phoenix area is experiencing a housing bubble, there are definitely people benefiting from it. Property investors buy property anticipating that the bubble will grow, and although this perpetuates the problem, they benefit. As far as the average homeowner goes, it’s not great. You may be able to sell your home for a greater profit, but that will just be reinvested into your next property, so it’s sort of a toss-up. If you sold for a high price, and the bubble burst, you may be able to purchase a nicer home at a lesser rate. You cannot rely on this, so it isn’t a recommended strategy.

When will property values decline in the Phoenix area?

Economist have been warning of an economic downturn for some time, but they don’t know when it will happen. Phoenix has some of the highest price growth the country, but nobody knows how big the bubble will get. You see, there is no clear definition of a housing bubble or its breaking point. All that is clear is that the price of homes in the Phoenix area is inflated, and housing bubbles don’t last forever.

Getting a Mortgage in Scottsdale, Arizona

by Karen Picarello

When you go to get a loan in Arizona, the process is dependent on your credit and how much you have available for a down payment. For first-time home buyers or those who don’t have enough for a down payment, there are programs available such as the Home Plus Mortgage Program, that offer down payment assistance to help you on the path to home ownership. Still, the process can seem a bit confusing. That is why we’ve created this general explanation of how to get a mortgage in Arizona.

Getting a Mortgage in Scottsdale, Arizona

According to Zillow, the median home value in Scottsdale is $480,400. This means there aren’t a lot of people using the Home Plus Program because it sets a price cap at $396,680. However, there are other assistance programs if you have a high enough income.

In order to get a mortgage, one must first go to a loan officer and fill out an application. In the application, you will disclose your assets and income along with any negative credit occurrences such as foreclosure or bankruptcy.

Once you’ve filled out an application, the loan officer will run a credit check. This will confirm the information on your application, let them see your monthly liabilities, and they will get your credit score. For most loan assistance programs, you must have a score above 640. Your score impacts whether or not you will be approved along with what interest rate will be available.

Assuming all goes well, the loan is submitted to an underwriter for pre-approval. Once approved, you will have to submit more paperwork such as tax returns, proof of income, bank statements, drivers licenses, letters of explanation, and proof of homeowner’s insurance.

An underwriter will give the final approval of your loan, and once this is done, the loan is sent to the title company. The title company coordinates and records all the information with the mortgage company and holds the title to the home, and once this is wrapped up, you are the proud owner of a new home!

It’s Not Always Easy

There can be many bumps in the road during the process of getting a home loan, and the paperwork can take time. You may think the process is almost finished only to have underwriters request more information. Sometimes by the time you get your home purchased, you can’t believe it’s real because it takes so long. The key is being patient and keeping an open mind when going through the process. It will happen.

The Cart Ahead of the Horse: Find Your Lender First

by Karen Picarello

            The hunt for a house is often the most fun part about purchasing a new home. You look online at sites such as Zillow, and you get an idea of what you want to look at. Then, you find a real estate agent and start looking at homes, but do you really know what you can afford? When you start off with a real estate agent, you get the cart ahead of the horse…as the old saying goes. You should really start by finding a lender and discovering what it is that you can afford.

            If you are casually considering moving, a soft search on the internet is totally appropriate. Dreaming about your future and finding out what’s available never hurts. However, a real estate agent only knows what you tell them about your financing, and you might be wrong when it comes to the amount you qualify for in a loan.

Pre-qualification vs. Pre-approval

            Pre-qualification only tells you what you may be able to afford according to how much money you make. It does not tell you if anyone will actually give you a loan. Pre-approval ensures that you will qualify for a loan following a credit check. If you don’t go to a lender first, you may be looking at homes when you don’t actually qualify for any loans. Especially if you don’t check your credit regularly, there may be some surprises on there that you didn’t expect. Surprises can take a lot of time to correct on your credit.

            You may think that going to a real estate agent without seeing a lender first is a waste of the real estate agent’s time. What is more important is that it is a waste of your time AND emotion. Not only do you need to know how much you can qualify for in a loan, but you need to mentally wrap your mind around those limitations. If you have your heart set on a 600,000-dollar home but can only be approved for $350,000, it can be emotionally draining. Instead, set your sights on those homes that fall within your budget. Speaking of which, your lender can help you budget for a home you can afford. Being approved for a $500,000 home doesn’t mean that you will be comfortable with the house payment. Speaking with a lender before looking for a home allows you to set realistic expectations.

Should I Get a Loan with Mortgage Insurance?

by Karen Picarello

            When you buy a home, there is typically an amount of money paid as a “down payment.” This amount is part of the purchase price of the home that you pay immediately out-of-pocket instead of increasing the amount of a loan. You can pay as much as you want in a down payment including up to the purchase price of the home, but the typical amount paid is 20 percent. If you pay more, you won’t have to get as large of a loan, and you won’t spend as much in interest over the life of the loan.

            In many cases, private lenders will require a down payment in order for them to approve a loan. The bigger the down payment, the less risk to the bank because there is less money they’d have to recover if you defaulted on the loan. Those who foreclose on their loans cause lenders to try to recoup the loan amounts through foreclosure sales, and these homes often sell significantly under market value. Therefore, a higher down payment equals less risk to the bank.

            A first-time home buyer may not have the funds available to put down a significant down payment. In this case, a bank or lender may reduce their risk by requiring mortgage insurance. Mortgage insurance covers the lender for a portion of the principal balance on a loan in case the borrower cannot make payments.

FHA Loans

Federal Housing Administration (FHA) loans are a typical type of loan for first-time home buyers, and they may only make a person pay a down payment of 3.5%. They will also accept lower credit ratings. The Mortgage Insurance Premium (MIP) is a requirement for this loan type, it will be 1.75% of the loan amount. You pay this monthly for the life of the loan or up to 11 years if you put down a larger down payment.

Conventional Loans

Private mortgage insurance may be available for conventional loans when a person only has to put down 3% for a down payment. This can be cancelled after 20% of the home value has built up in equity.

USDA Loans

The U.S. Department of Agriculture offers loans with no down payment, but you have to pay an upfront fee of 1% of the loan amount and an annual fee of 0.35% of the balance of the loan. Similar to all other mortgage insurances, it reduces the risk to the lender.

Should You Get a Loan with Mortgage Insurance?

Sure. If it is the only way you are going to get a loan. The better option is to wait for better financial circumstances or save money for a down payment, but some realities don’t produce this as an option. It does not hurt your credit to have mortgage insurance, but it does hurt your pocketbook. Discuss your options with your lender and a financial adviser, and make sure you make the responsible decision.

Mortgage Rates Continue to Fall Amid China Scare

by Karen Picarello

The mortgage giant Freddie Mac just released new numbers showing continued decreasing rates for home loans. Its 30-year fixed rate is down to 4.1%, and its 15-year fixed rate is down to 3.57%. While this is not great economic news, it is great news for those who are looking for a home loan.

Rates continue to fall because of trade tensions between China and the U.S. Trumps tariffs and continued threats to increase tariffs have created an uncertain stock market. Not even strong employment numbers can strengthen predictions about the future, and weakened relations between China and the U.S. could keep mortgage rates low.

What Does this Mean for Prospective Home Buyers?

If you are thinking of purchasing a home with a mortgage anytime soon, you should get ready. Nobody knows how long rates will stay this low. A 4.1% rate is a lot less money to spend over the course of a loan, and if you can swing the 15-year fixed rate, you’ll be debt-free in less than 2 decades.

If your credit isn’t quite up to par, and you don’t think you’ll qualify for a 4.1% rate, you should work on improving it. It is quite possible that the rates will stay low for a while with this administration, but it won’t stay this way forever. You might be able to afford a home quicker than you think.

What Does this Mean for Current Homeowners?

For current homeowners, this means two things. The first thing is that you may want to look into a re-fi. Lower interest rates can take hundreds off of your monthly payment and reduce the overall amount of money you spend on interest over the term of the loan. Re-financing to a 15-year loan will improve the amount of money that is applied to your principle balance each month.

The second thing this means for homeowners is that there may be more people seeking mortgages, and this might be a good time to sell your home. It is a seller’s market, and home values have been increasing. Not only will you be able to get a higher offer for your home, but you will have more people who can successfully get loans out looking. This amounts to more successful closings, and overall, happier home sellers and buyers.

You’d be hard-pressed to find a lot of people who think the tension between China and the U.S. is great, but there has been one good result for the housing market, and that is continued decreasing interest rates.

Pre-approval Equals Seller Confidence

by Karen Picarello

With the Fed keeping interest rates stagnate, there could be more buyers in the market while interest rates remain low. However, predictions vary in whether or not the current seller’s market will continue. Many believe there is a shift on the horizon, but it is too soon to tell. For home buyers who are not cash buyers in any market, you can get the ball rolling by getting your loan pre-approved and increasing the seller’s confidence in you.

Why does a seller need confidence?

Cash buyers are a sure thing, and the mortgage process is not going to hinder the sale. On the other hand, if a buyer is going to use a mortgage to purchase the home, there are a number of things that can stall the sale. Proving income from self-employment, unknown liens against a property, and debt problems can stall or stop the mortgage process. Additionally, you must figure out how much you can afford and how much banks are willing to dole out. This is a complex process that may take a week or many months. Sellers want to know that you are ready to start the buying process, so they don’t have to wait for their house to close. Many home sellers are picking up a new mortgage, so they may not want to wait until you are pre-approved to sell their home.

How do you get pre-approved?

1. Check your credit:

If you need help getting your credit score increased, start with the basics. Make sure you are making payments on time, and make sure you don’t have too much debt compared to your assets. If you have debt problems, speak to creditors about your options. They may be able to lower your interest rates or give you a lower pay-off amount provided you pay in full.

2. Choose a lender:

There are many lenders from which to choose. Once you know you have your credit rating up to par, and you are ready to look for a lender, make sure you check out a few. Compare their rates and read their contracts, and choose a lender who you feel you can trust. You may want to refer to the advice of friends and family.

3. Provide the information needed:

You’ll have to give your potential lender your financial information in order for them to pre-approve. This means income information, debt information, credit scores, etc. The lender will go over everything and evaluate you as a financial risk. Then, they will pre-approve you for a certain amount. This is not the amount you must spend on a house, but it is the amount they feel that you can afford and the amount they are willing to provide.

Once you are pre-approved, you will still have more work involved in securing the mortgage, but your seller will know that you’ve already covered the basics, and it is likely that they will be paid in a timely manner.

Economic Worries May be Good for the Housing Market

by Karen Picarello

The economy is globally unstable, and with a lagging housing market, the Federal Reserve has decreased mortgage rates to the lowest amount in a year. New numbers are expected to be announced Wednesday, and experts are predicting that the Fed will not be raising rates any time soon. We won’t know until Wednesday, but it seems that economic worries are good for the housing market.

Wavering Stock Market = Incentives

The Federal Deserve increases and lowers interest rates in an attempt to keep all markets stable. Right now, the stock market is unstable due to global economic unrest. The trade war with China across one ocean and Brexit failures across the other ocean don’t have anyone feeling secure in volatile investments. They are seeking out secure investments like long-term bonds.

When the consumer is unsure like this, the Fed steps in and lowers interest rates to incentivize people to buy because they won’t lose as much money in interest. Last week, the rate went as low as 4.31 percent.

Insignificant Job Growth but Increased Wages

One of the other things on many economist minds is when Millennials are going to start buying homes. It’s not like there aren’t any who own homes currently, but they aren’t the major consumer demographic. They should be. Instead, Millennials are living with friends or family instead of taking on more debt. This is caused both by high rates of student loan but also by the inability to save enough for a healthy down payment.

Although job growth has been slower than expected, wages have gone up. This gives Millennials more disposable income and savings potential. It could be enough to make them feel confident in buying a home as a sound financial decision. They’ve seen the debt-ridden generations of the past and are reluctant to travel down the same path.

It’s a Guessing Game

Nobody knows what will happen to interest rates, but it makes sense that rates would stay the same or lessen. The economy is simply not safe enough to get people to buy houses unless they can’t resist low rates. Sales fell 1.2 percent from December to January, but there was an increase in new construction. As long as there are a no economic catastrophes, mortgage rates will probably only remain low for a short while. Hopefully, it will be enough to stimulate the economy. Until then, it could really help the housing market.

Mortgage Rates 101

by Karen Picarello

If you are a new home buyer, mortgage rates may seem a bit confusing. You know you want a low rate, and you don’t want a subprime mortgage, but you aren’t really sure what subprime means or how to find a low rate. A good mortgage broker will be able to help you find a good loan for which you qualify, but you should be equipped with some basic knowledge and understanding of the creation of mortgage rates and loans.

3 Basic Types of Mortgage Loans

1. 30-year fixed: A 30-year fixed rate loan is the most common type of loan for a home buyer. The interest rate is fixed, and you can get this type of loan through FHA, VA, and other standard mortgage companies.

2. 15-year fixed: It is amazing how much faster you can pay off your home (and save money) with a 15-year fixed loan. You can get a lower interest rate and pay less over time because of the shortened term length. While this may seem like an easy decision (if you can afford the increase in payments), you must consider other investment opportunities. You could be investing the difference in payment amounts. A financial advisor can help you weigh the benefits of a 30-year versus a 15-year fixed loan.

3. Adjustable-rate loan: Adjustable rate loans take advantage of current interest rates, which can be much lower in the early part of the loan. If a person isn’t planning on living in a home for many years, it may actually save them a lot of money. However, it is risky. Interest rates can shift causing great changes in monthly payments. People who get adjustable-rate loans in order to get a bigger house than they can afford may not be able to keep-up with payments. This is, in part, what caused the last housing crisis.

3 Tips for Successful Mortgage Loans

1. Get a good mortgage broker:

A good mortgage broker can time your closing to get you the best interest rate possible. However, you want to make sure you go to one who you trust and who has the knowledge to get you the best loan. Talk to people about who they have hired, and look at online reviews. An informed decision is always best.

2. Get your budget put together:

You should have a reasonable idea of how much income you have available for a home purchase. This includes how much savings you have for a down payment. Be prepared with this information prior to going to your mortgage broker, so he or she can do their job.

3. Don’t bite off more than you can chew:

You may be able to eek out the payments on a big house for a little while, but don’t bit off more than you can chew. Foreclosures and short sales are a big hit to your credit score and can take away your opportunity for future home ownership for a certain amount of time. Be reasonable. You can always upgrade when finances are better. It isn’t worth the risk to get a loan that you cannot afford.

From Renting to Buying: The Home Plus Program

by Karen Picarello

If you are currently renting, the transition to buying a home can be financially impossible with closing costs and a down payment as a typical requirement. If you are a first-time home buyer with no military background, a federal FHA loan may be an appealing option. However, if you are buying in Arizona, the state has a Home Plus program that can help get a person over the financial hurdles of the home buying process.

Renting a home is a good short-term option for many people who are building credit or saving for a down payment, but it is not a good investment in the long term. That's why those who think finances are getting in the way of home ownership should look into assistance from federal and state programs. 

What is The Home Plus Program?

The Home Plus program is a state program created and given by the Arizona Industrial Development Authority, and it gives new home buyers a 30-year fixed loan for a home along with down payment assistance. The down payment assistance is given as a type of second mortgage, but don’t let that stress you. The loan is a three-year, no payment, no interest mortgage that is forgiven over the term of the lien. This loan can be used for a down payment or for closing costs.

What are the requirements?

There are some requirements for the Home Plus Program, and a minimum credit score is one of them. A range of down payment assistance percentages are available for home buyers with a minimum credit score of 640 to 680. If your credit is below this, you cannot qualify. However, these credit scores are not considered good, and you may be able to get your credit up to “average” quicker than you think.

Other requirements include a maximum income of $99,170, and the price of the home cannot be more than $396,680. A homebuyer education course must be completed by one borrower before closing, and the home must be a primary residence.

Basically, if you don’t own a home, and your financial situation seems to be prohibiting home ownership because of closing costs and a down payment, the Home Plus program may be the solution.

Let’s face it. Your rent payments are simply being thrown away into the abyss of monthly bills and payments made in order to have basic survival needs met like shelter and electricity. That money could be invested into property ownership, and financially, it is not impossible. Ask your mortgage broker or lender about the Home Plus program. It could be the help you need to get the homeownership process up and going.

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Contact Information

Photo of Team Picarello Real Estate
Team Picarello
RE/MAX Fine Properties North Scottsdale
21000 N. Pima Road, Suite 100
Scottsdale AZ 85255
Office: (480)860-8733
888-548-8713
Fax: (480)860-8755