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      How to Buy a Home Even Though Your Credit Stinks

      If you’ve always imagined owning a home but don’t think you have the necessary credit history to pull it off, you’re not alone. Owning a home has long been a part of the fabled American dream, but in recent years, the prospect of homeownership has become increasingly out of reach for many Americans. Between problems with the housing market and the nation’s overall economy, financial struggles have resulted in low credit scores and little savings. Fortunately, there are ways to buy a home even if your credit isn’t the greatest.

      Person Holding Black Ceramic Teapot  Image source: Pexels

      Face Your Credit Demons 

      When you don’t have an excellent financial history, checking your credit report is often the last thing you want to do. Reviewing one negative item after another can make anyone feel depressed, overwhelmed, and hopeless. However, your best bet is to just take a deep breath and jump in — you’ll feel proud of yourself once you do! Carefully review your report to find out what’s dragging your score down. If it’s been a while, you may be surprised that some things have dropped off your report due to the seven-year reporting limit. Doing what you can to start repairing your credit now will pay off in the future. 

      Get To Know Your Local Market

      The first step in any housing search is getting familiar with your local housing market. Do some online searches and check out some real estate sites to get an idea of what housing prices are like in your area and understand what you can afford. Consider a variety of neighborhoods and be honest with yourself about your wants versus needs in a future home.

      Understand Your Mortgage Options

      Specific mortgage terms vary from lender to lender, but there are a few major types of mortgage loans that you should be aware of. Conventional mortgages, which are not backed by the government, tend to require the highest credit scores and down payment amounts of all the mortgage types. Government-insured loans, such as FHA and VA loans, typically have a lower credit threshold and require a much lower down payment. Depending on your circumstances,
      you may also qualify for a first-time buyer program or down payment assistance resources.

      Lock-In a Low-Interest Rate

      Whichever type of mortgage you choose, it’s important to secure the lowest possible interest rate to keep your monthly payments — and overall amount due —as low as you can. Unfortunately, the lower your credit score, the higher risk you pose to a lender, which usually means a higher interest rate.

      To reduce your interest rate despite your credit history, you could offer larger cash down payment, or ask a relative with good credit to co-sign the loan with you. If those aren’t options, you may consider paying for mortgage points. When you buy mortgage points, you pay the mortgage lender a certain amount upfront in exchange for a lower interest rate. Many factors go into determining whether mortgage points are worth the cost. A mortgage points calculator may
      help you figure out if buying mortgage points is a wise choice in your particular circumstances. Be prepared for your journey to homeownership to take some time. Continue improving your credit score and saving what you can, and don’t rush into a bad deal that will only hurt your credit further. With patience, research, and planning, you can realize your dream of buying a home.

      If you’re ready to take the first steps towards purchasing a home, the Lyons Group can help you navigate the process. Contact one of our experienced agents at 617-901-4500 or lyonsgroup@compass.com today.

      10 Credit Mistakes That Could Cost Buyers Their Dream Home

      A few years ago, in a similar market to the one we are currently experiencing, we managed to get buyers into a contract on the home of their dreams. It took a lot of effort; they were blown out in many multiple offer situations before we finally managed to ink a deal. Needless to say, they were ecstatic.

      A week later, as they pulled up to the property to meet with the inspectors, I noticed they were driving a brand-new BMW. “You borrowed that car, right?” I queried. 

      The husband proudly proclaimed, “No — it’s ours — now that we know we are going to have a garage, we bought a car to go in it.” 

      Speechless for a moment, I gathered my thoughts and then said, “I’m sorry to say this, but you no longer have a garage. In fact, you no longer have a house.”

      Unfortunately, their new car purchase pushed their debt ratio over the limit, and they no longer qualified for the mortgage required to purchase the home. That was a day of bitterness for the buyers and of reckoning for me. 

      It marked a new phase in my career: a commitment to make sure I changed the messaging we provide to buyers before they begin looking for homes so that mistakes like this would never happen again.

      We now schedule a meeting with all our buyers before opening the door to any prospective home. Although we cover many topics in our time together, we pay special attention to credit do’s and don’ts and potential financial mistakes to avoid once they get into contract.

      Here are the top 10 things we now advise them never to do once they begin looking to buy a home:

      1. Don’t apply for new credit

      Most people understand this, but some get so excited about getting new digs they start setting up lines of credit with furniture stores, home improvement centers and the like. 

      Every time a buyer applies for new credit, their credit will be pulled by a potential creditor or lender, and they run the risk of immediately losing points on their credit score.

      2. Don’t make any large purchases

      We advise our clients to hit their “patience button” and avoid any large purchases until escrow has closed. Even though we explain this to all of our buyers upfront, we constantly get pinged with questions such as, “The appliances I want just went on sale — I can save hundreds. Are you sure I cannot buy now?” 

      We explain that if they have significant enough reserves that they can pay cash, go ahead. If they need to buy with credit, they need to hold off.

      3. Don’t pay off collections or ‘charge offs’

      This point might seem counterintuitive, but let your clients know that if they want to pay off old accounts, do it through escrow. Once the debt is paid, make sure they get a “letter of deletion” from the creditor.

      4. Don’t close credit card accounts

      If you close credit accounts, it might appear that your debt ratio has gone up. Closing credit cards will affect other factors in the score, including credit history. Lenders use active credit lines to establish creditworthiness, so they need to stay active. 

      Once, our clients preemptively assumed that it would be best to have a little credit exposure as possible, so they closed all their credit lines before applying for a loan, only to discover it was the worst thing they could have done.

      5. Don’t max out or overcharge credit card accounts

      Tell them to keep credit card balances below 30 percent of their limit during the loan process. If a buyer pays down balances, do it across the board. If possible, keep credit card spending to a minimum during the homebuying process.

      6. Don’t consolidate your debt

      When consolidating debt onto one or two cards, it appears that the buyer is “maxed out” on that card and will therefore be penalized.

      7. Don’t change bank accounts

      Do not close accounts, open new accounts or change banks altogether. This sends off all kinds of warning signals to loan underwriters.

      8. Don’t deposit cash into your bank accounts

      Instruct your buyer to talk to their lender before making any cash deposits. If the money is from a family member, it must be accompanied by a gift letter. 

      If it is cash from any other source, the lender will need to verify its’ source before it hits their account. In the same way, buyers should not arbitrarily transfer money from one account to another.

      9. Don’t co-sign loans with anyone

      This is never a good idea to begin with, but while your buyers are getting a loan of their own, it’s forbidden.

      10. Don’t do anything weird

      Instruct your buyers to avoid things that will cause a red flag to be raised by the scoring systems, including changing their name or address, missing payments, making late payments or changing spending patterns.

      It’s hard enough to get into contract these days — make sure your buyer does not financially self-destruct along the way.                       

      As seen in INMAN Real Estate News  Written by: Carl Medford is the CEO of The Medford Team.

      How Smart Is It to Buy a Home Today?

      How Smart Is It to Buy a Home Today? | MyKCM

      Whether you’re buying your first home or selling your current house, if your needs are changing and you think you need to move, the decision can be complicated. You may have to take personal or professional considerations into account, and only you can judge what impact those factors should have on your desire to move.

      However, there’s one category that provides a simple answer. When deciding to buy now or wait until next year, the financial aspect of the purchase is easy to evaluate. You just need to ask yourself two questions:

      1. Do I think home values will be higher a year from now?
      2. Do I think mortgage rates will be higher a year from now?

      From a purely financial standpoint, if the answer is ‘yes’ to either question, you should strongly consider buying now. If the answer to both questions is ‘yes,’ you should definitely buy now.

      Nobody can guarantee what home values or mortgage rates will be by the end of this year. The experts, however, seem certain the answer to both questions above is a resounding ‘yes.’ Mortgage rates are expected to rise and home values are expected to appreciate rather nicely.

      What does this mean to you?

      Let’s look at how waiting would impact your financial situation. Here are the assumptions made for this example:

      • The experts are right – mortgage rates will be 3.18% at the end of the year
      • The experts are right – home values will appreciate by 5.9%
      • You want to buy a home valued at $350,000 today
      • You decide on a 10% down payment

      How Smart Is It to Buy a Home Today? | MyKCMHere’s the financial impact of waiting:

      • You pay an extra $20,650 for the house
      • You need an additional $2,065 for a down payment
      • You pay an extra $116/month in your mortgage payment ($1,392 additional per year)
      • You don’t gain the $20,650 increase in wealth through equity build-up

      Bottom Line

      There are many things to consider when buying a home. However, from a purely financial aspect, if you find a home that meets your needs, buying now makes much more sense than buying next year.

       

       

      The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Keeping Current Matters, Inc. does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Keeping Current Matters, Inc. will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.

      We believe every family should feel confident when buying and selling a home.

      Are There Going To Be More Homes To Buy This Year?

      Are There Going to Be More Homes to Buy This Year? | MyKCM

      If you’re looking for a home to purchase right now and having trouble finding one, you’re not alone. At a time like this when there are so few houses for sale, it’s normal to wonder if you’ll actually find one to buy. According to the National Association of Realtors (NAR), across the country, inventory of available homes for sale is at an all-time low – the lowest point recorded since NAR began tracking this metric in 1982. There are, however, more homes expected to hit the market later this year. Let’s break down the three key places they’ll likely come from as 2021 continues on.

      1. Homeowners Who Didn’t Sell Last Year

      In 2020, many sellers decided to pause their moving plans for a number of different reasons. From health concerns about the pandemic to financial uncertainty, plenty of homeowners decided not to move last year.

      Now that vaccines are being distributed and there’s a light at the end of the COVID-19 tunnel, it should bring some peace of mind to many potential sellers. As Danielle Hale, Chief Economist at realtor.com, notes:

      “Fortunately for would-be homebuyers, we expect sellers to return to the market as we see improvement in the economy and progress against the coronavirus.”

      Many of the homeowners who decided not to sell in 2020 will enter the market later this year as they begin to feel more comfortable showing their house in person, understanding their financial situation, and simply having more security in life.

      2. More New Homes Will Be Built

      Last year was a strong year for home builders, and according to the National Association of Home Builders (NAHB), 2021 is expected to be even better:

      “For 2021, NAHB expects ongoing growth for single-family construction. It will be the first year for which total single-family construction will exceed 1 million starts since the Great Recession.”

      With more houses being built in many markets around the country, homeowners looking for new houses that meet their changing needs will be able to move into their dream homes. When they sell their current houses, this will create opportunities for those looking to find a home that’s already built to do so. It sets a simple chain reaction in motion for hopeful buyers.

      3. Those Impacted Financially by the Economic Crisis

      Many experts don’t anticipate a large wave of foreclosures coming to the market, given the forbearance options afforded to current homeowners throughout the pandemic. Some homeowners who have been impacted economically will, however, need to move this year. There are also homeowners who didn’t take advantage of the forbearance option or were already in a foreclosure situation before the pandemic began. In those cases, homeowners may decide to sell their houses instead of going into the foreclosure process, especially given the equity in homes today. Lawrence Yun, Chief Economist at NAR, explains:

      “Given the huge price gains recently, I don’t think many homes will have to go to foreclosure…I think homes will just be sold, and there will be cash left over for the seller, even in a distressed situation. So that’s a bit of a silver lining in that we don’t expect a massive sale of distressed properties.”

      As we can see, it looks like we’re going to have an increase in the number of homes for sale in 2021. With fears of the pandemic starting to ease, new homes being built, and more listings coming to the market prior to foreclosure, there’s hope if you’re planning to buy this year. And if you’re thinking of selling and making a move, doing so while demand for your house is high might create an outstanding move-up option for you.

      Bottom Line

      Housing demand is high and supply is low, so if you’re thinking of moving, it’s a great time to do so. There are likely many buyers who are looking for a home just like yours, and there are options coming for you to find a new house too. Let’s connect today to see how you can benefit from the opportunities available in our local market.