Facts About Credit Scores

For the average consumer, it's not of much interest how or why a credit score is put together, but simply that they can swipe their credit card or be approved for a line of credit whenever need be.

The unfortunate reality is without a firm understanding of credit scoring, these luxuries can quickly become a thing of the past.  A credit score destroyed by irresponsibility or fraud can leave those affected wondering what happened and what they can do to fix the mess.

A myriad of things can raise or lower your score, but the bulk of your score is a lot of timely payments.  Nothing can raise your credit score more than consistently paying off your debts on time.  On the other hand, nothing can hurt your score more than missing payments.  It's important to remember that it will take a lot more reliable payments to make up for just one missed payment so try to avoid it at all costs.

Along with a detailed history of payments, things like the amount of credit used can effectively boost your score.  It's important to make sure there is a long history, because without one, it's difficult for creditors to accurately determine your score and that will unfortunately lower it.  A great remedy for this is to take the cash you have available and set it aside; then purchase things such as groceries and gas on credit and use your cash to pay off the card at the end of the month.  Doing this will keep you out of debt but give you a quick and easy way to build up a credit history, thereby increasing your credit score.

Whether you choose to be informed about it or not, your credit score will follow you and influence (or haunt) your financial life forever.  It's best to be prepared and have the tools and knowledge to tackle any endeavors that come along.

If you have any questions about your credit score or how it's computed, leave us your comment or question below and we'll be sure to get back to you ASAP.

New Home Sizes Shrinking?

With the nation's housing market in a slump and the mortgage market in disarray, many home builders are putting up fewer supersize homes and offering smaller floor plans. That seems to be what buyers suddenly want in an era of high prices and tougher financing.

Home sales have plunged over the past year, leaving builders saddled with excess inventory, especially of larger, more expensive homes.  In July, new-home sales were running at a seasonally adjusted annual rate of 870,000 units, down sharply from 1.3 million in 2005.  More recently, turmoil in the mortgage market has made it harder for buyers to qualify for bigger loans.

All this seems to be causing builders to redraw their blueprints.  After reducing prices on their current inventories of unsold homes, the next step would seem to be to start building to a new market.  That new market is a lower price point at a smaller size.

While home builders are aware that customers increasingly want smaller, cheaper homes — and in some cases can't afford anything else — building those homes eats into their profits, often because of the high price they paid for the land the homes are built on.  That leaves them having to hope for higher sales volume to offset their reduced margins.

Look for the overall trend in new homes to move to smaller plans to keep prices affordable for the masses.

Refinance Rescue - Potential Tax Help Too

Hundreds of thousands of homeowners who may struggle to make mortgage payments are likely to get some relief in coming months, including more options to refinance into lower-cost, fixed-rate loans and tax relief if they do face foreclosure.

About 240,000 borrowers of the estimated 2 million with adjustable-rate loans scheduled to reset in the next year already are eligible to refinance into a loan insured by the Federal Housing Administration (FHA) - roughly 80,000 of them are eligible because of the newly created FHASecure Act, which loosens FHA's criteria for refinancing.

If you are behind on payments by at least four months but no more than 12, the FHA may even make a one-time interest-free loan to you to make your account current with your lender.

It used to be you couldn't refinance into an FHA loan if you'd been delinquent in your payments for any reason. But with the FHASecure Act, delinquent homeowners qualify for an FHA-insured refi if they have:

• A history of on-time payments for at least six months before their loans reset to higher rates
• Interest rates scheduled to reset between June 2005 and December 2009
• 3 percent equity in their home, or the cash equivalent
• A sustained history of employment
• Sufficient income to make their FHA-insured mortgage payment and all other obligations

For homeowners whose situations can't be remedied with a refi, they may get tax relief if they end up facing foreclosure.

Currently, if you foreclose on your home and the bank forgives a portion of your mortgage debt which isn't recovered by the sale of your home, that forgiven debt is treated as taxable income to you.  President Bush has asked lawmakers to provide a temporary exemption from that rule.

It now seems like a real likelihood that lawmakers will pass that exemption this fall and make it retroactive so that homeowners who foreclosed in 2007 would be covered.

Retirement? Don't Count on Your Home  

In recent years, many families — even those with savings on the small side — have been able to think about retirement with some measure of confidence.  The value of their homes, in most cases, has soared.

A study released recently by Bell Investment Advisors in Oakland, California, found that 68% of surveyed 60-year-olds count their personal residence as a retirement asset.  And of those 68%, one in four say their home represents half or more of their retirement savings.

The past several months, however, illustrate the risks involved in looking to your home to support your retirement.  Home prices nationwide are falling, and the decline is accelerating.

You might be planning to sell your house and move to a smaller and less-expensive home as you enter retirement.  What happens, though, is that retirees often end up staying where they are, or — if they do sell — buy a home of equal or greater value.

Interest rates, too, could have a big effect on plans you might have to tap the equity in your home, especially if you're thinking about a reverse mortgage.  With this type of borrowing, you can receive monthly payments, a lump sum or a line of credit.  The amount you can borrow is tied in large part to prevailing interest rates; the higher the rate, the less money you get from a lender.

In short, if the value of your home falls — which many Americans had come to assume would never happen — there's less equity to help finance your retirement.

Are you planning your retirement around the equity in your house?  We'd love to hear your comments on this growing trend, and how you see the market trend today affecting your retirement years.

Click the "Comment" link below and leave us your thoughts on this.

Three Mistakes New Homebuyers Make

Although the list of mistakes new homebuyers tend to make could fill up this entire page, there are three that seem to stand out among all as being the most frequent mistakes made.

The first mistake people often make is to purchase a new vehicle right before they start looking for a home.  Borrowers looking to purchase a home in the near future, (within the next 6 months to a year), should wait until their home loan has closed before purchasing an automobile.  You'd be shocked to learn that buying a new car can lower your FICO score by 40 to 100 points!

Second, many buyers wait until their lease is getting ready to expire before they begin their home search.  By working with your mortgage consultant well in advance of a move, buyers will be much better informed about the mortgage process and the steps they need to take to secure the best financing.

Third, be careful about letting too many companies pull your credit, since inquiries generally remain on your credit report for two years from the date reported.  It's also a good idea for home buyers who are planning to purchase a home in the near future to discuss their plans with a mortgage consultant who can provide a free credit analysis and help them prepare for homeownership. 

The "Mistake List" could go on and on, but these three stand out, and we see these mistakes made more often than any other.  So if you're going to soon be in the market for a new home, keep these mistakes in mind, and don't let making these mistakes cost you that new home you're hoping for.