Category Archives: Mortgages

Fico Score News and The Basics

File under About Time!

Changes are coming to the FICO credit-scoring system, potentially allowing millions of people to better to qualify for mortgages and get better rates!

 

Easier loans? Credit score changes affect millions

The Wall Street Journal reported that Fair Isaac, which produces the FICO score, will no longer include failures to pay bills when calculating a score if the issue has since been resolved. The tabulation also will take unpaid medical bills less into account, according to the Journal.

Unpaid medical bills unfairly hurt scores

Out of the 106.5 million Americans with a payment collection on their report, 9.4 million had no current balance, which means their credit scores will be bolstered by the new system. This is good news!

What Matters in Your Score

The FICO score is a way to predict, for lender, who is more likely to not pay back a loan as agreed. Some things can cause greater or smaller changes to your score. images0FFQTRD5

Here’s what matters:

Payment History is 35% of the score – Late payments are killers, no matter the size or the loan or payment. Mortgage lates the ones to avoid the most. Tip – avoid closing active accounts, especially if you have a long, good payment history.   Amount Owed 30% – Balances that are more than 10% of your available credit on each account begin to “ding” your score. Paying off or down small balances on small line accounts takes less cash and will increase the fico score Length of Credit History 15% – The older, the better, unlike Hollywood actresses Type of Credit 10% – Have a mix of credit cards, car loans/leases, mortgages for best scores. Don’t have none, OK? That is called a “thin” file and lenders hate it. How do they know you can handle credit? New Credit 10% – Lots of new credit or excessive inquiries in a short time are red flags you are running out of cash. If you are planning to get a home or refinance don’t open a bunch of credit before you know your current FICO. Talk to a mortgage pro first

Got Questions?

Ask David Garrett
310 456-1056

 

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David’s Angels

80Day in Long Beach

My daughter asked me along to help on a Habitat of Humanity build in Long Beach last week. Had to take the shot above with the beautiful Ingrid Sophie Schram, Lauren Glazier, and Beau Garrett.

The rest of the (guy) volunteers were quite jealous and there was some distraction – not good on a construction site.

Great fun for a great cause (www.habitatla.org) but I also learned about an amazing place to get great stuff for your home at great prices.

Secret Place and Hollywood, Too

Married to Randi means I know home remodel. In fact we have built 2 1/2 homes (more on that 1/2 number another day). What I wish I had known is about Habitat’s two stores. Here’s the scoop:

The ReStore is a social enterprise of Habitat for Humanity of Greater Los Angeles (HFH GLA). It was established to be a self-sustaining funding source for HFH GLA and to provide our local community with low-cost building and home improvement materials.

The ReStore sells donated materials including new and gently used furniture, appliances, lumber, hardware, vintage, and unique items to the public. All prices are at least 50% off retail value and all proceeds from the ReStore are used toward the Habitat for Humanity mission to end substandard housing worldwide.

Bargains and Important “Green” Projects

  • Since 2004, the HFH GLA ReStore in Gardena has helped divert over five million pounds of reusable materials form local are landfills.
  • Both the Gardena and Norwalk ReStore locations are “e-waste” colleciton sites. Donations of television and computer monitors, computer towers/hard drives and other electronics help keep electronic waste from landfills and help HFH GLA fund building projects all over the greater Los Angeles area.
  • Trucks are sent out daily to pick up items all over Los Angeles, too.
  • The ReStore receives new, used, discontinued or surplus building materials, appliances, and home furnishings from companies, contractors, retailers, film, and television studios and individuals.

Home Goods meets Home Depot meets Marshalls meets Hollywood

Stuff arrives daily and fans wait for the stores to open. Never know what – from paint rollers to Traulson Freezers at great discounts. TV and movie productions donate from sets so you may find something from Breaking Bad or Star Trek – not labeled buy fun to guess.

Check it out at www.shophabitat.com

Want to help? www.habitatla.org

 

Have questions about a home or commercial loan?

Ask David Garrett

310 456-1056

 

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Do I Make Enough to Get a Home?

72So, You Think You Know How Much You Make?

When starting a home search one of the first questions I hear is “what price home can I get approved for?” (I know, not great English)

You need enough income to cover the mortgage, property taxes, insurance, HOA fees (if any) plus any other monthly debt payments with at least 55 cents per dollar income left over. It’s what’s called debt-to-income ratio or DTI and while it can sometimes be higher or a bit less, it is about 45% maximum.

For example – A $350,000 price home with 20% down would have an estimated mortgage payment plus monthly “budget” for property taxes and insurance of about $1,900/month*. If car payments and credit card or installment loans equal another $600 then the total monthly amount would be $2,400. For that the minimum income needed would be $5,515 monthly at 45% “DTI”.

Of course the first question to I ask back is what payment amount  do YOU feel comfortable with. It’s not unusual that I hear less than what they could get.

That’s fine, in fact a better answer.

Salaried or Self-Employed?

Caution – Lender’s math is complicated when calculating your income. They want to see a two year history of predictable income. That makes sense, right?

So if you are full time, paid a salary and have been doing the same kind of work for 2 years then the current gross income is what is used. If, like a lot of people I see in LA, you are still writing that script and your income fluctuates you will never be able to calculate the income a lender will use.

Self-employed or salary both can work. The second just requires more math and experience – that’s what I do.

Tip – remember about the 2 year income history? If you are thinking of buying a home (or getting a refinance) don’t quit your day job and start writing that script full time yet. You see self-employment income is calculated as a 2 year history of NET income based on last 2 years’ FILED tax returns.

Long time to wait.

What’s Your Number?

I can help you with that so you will know what your “qualifying” income is. I might even be able to help with some script ideas.

Have questions?

Ask David

310 456-1056

*A $280,000 loan with a rate of 4.5% (4.589% APR) is $1418.72/month

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Buying a House? What to Know

33

Home Buying Made Easier

A home purchase is a big decision and can stress out anyone. I have helped hundreds of people with their first, next, second or third home and there is a proven way that works best.

Buyers have to make many decisions from start to finish and when there is an unexpected turn nerves can fray quickly – all this while moving plans are being made. Not easy.

If the house is the right one, at the right price with financing that fits then don’t let it get away. I have owned many homes and built three and there is nothing like having your own home.

The 10 things to do:

  1. Get pre-qualified for a mortgage – You need to know what home price will best fit you financially. With this done you can search with confidence.
  2. Select an experienced loan consultant to get the pre-qualification. Call someone you trust for a recommendation. He or she should spend the time needed to answer all your questions and earn your trust. If that happens stay with him or her.
  3. Identify homes and neighborhoods in your price range – Most search online and it’s a great way to see homes in detail, learn about schools, transportation and commute, activities and more.
  4. Choose a Realtor – I have a real estate broker’s license so I could represent myself. I never would do this and neither should you. Go to an experienced, local realtor and get recommendations again from someone you trust. The best ones work very hard to get you the home you want and continue to do so right through closing.
  5. Know what to expect – I always give buyers a written guide on what to expect with the loan process. Getting a loan is not easy. It’s more about a “perfect loan file” than “are they qualified?” There are things to do and not to do to avoid delays or worse. A great realtor also will prepare you for what to expect.
  6. Be responsive – Send your loan person everything asked for, exactly and completely, right away. It is needed regardless of how silly or stupid it seems.
  7. Ask questions – There are a lot of moving parts and precise steps to getting a home legally yours with a loan attached. Ask questions to be sure you understand them and are making the right choices.
  8. Be available – By phone, email for questions and decisions. A vacation a few weeks before escrow closes is not a good idea. Keep your loan officer and realtor informed how to reach you.
  9. Breathe – You have the right house, loan officer and realtor so let them do their jobs.
  10. Enjoy – You have earned it. Enjoy your new home.
Have questions?

Ask David

310 456-1056

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ID Theft – Children, Too?

Penguins

Identity theft is the fastest growing crime in the US. It isn’t just someone buying tons of stuff at some stores, in some city, in some state you have never been. Happened to me, both daughters and my wife. How about you?

Here are some other ways you can fall victim:

Driver’s license – tickets, accidents, and more that you find out about when the CHP orders you out of your car and off to jail

Medical – Hospital and medical bills in your name that trashes your credit. Especially popular is Medicare fraud.

Social Security – Love the fact that SSA tells you to not keep your social security card with you but Medicare ID card is issued with your your SS #, cleverly disguised with an “A” after it.

Character/Criminal – Using your ID to hide behind you for criminal activities.

All kinds of scum are working hard to hack into Facebook accounts (600,000 attempts thwarted each day! – how many get through?)

Account information in the hundreds of millions is stolen/left open from companies, banks, and even the IRS, Veterans Administration and Sony Playstation!

What can you do to keep non-public, private information safe?

  •  www.annualcreditreport.com – Check your credit for free every four months by selecting each of the 3 credit bureaus in turn
  •  Check your children’s credit reports as well. Social security numbers for infants have been stolen and used to apply for credit
  •  Go over all credit card bills for accuracy
  •  Shred mail (cross-cut shredder)
  •  www.Identitytheft.com – learn all the “red flags” and how to protect yourself
  • http://www.consumer.ftc.gov/features/feature-0014-identity-theft – more information from the Federal Trade Commission
  •  IRS ID Theft – 800 908 4490 – Best is that you are assigned one person at IRS throughout the process. Explain only once.
  • SS Fraud – Report and get help at 800 269 0271
Have questions?

David

310 456-1056

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Homeowner’s Insurance Tips from an Expert

Living in the Santa Monica Mountains for over 30 years I know fires and have been evacuated twice.
So, I take insurance seriously.
I like the calm feeling of having insurance but try not to add up exactly how much I pay for all of it. When I get the bill I usually ask close friends how much they are paying.
Do you do the same?
What I should do is make sure I have the coverage I need as things change and after a loss is not when I want to find out an oversight. So I called my insurance guy, Rick McMichael for some pointers.

 

His advice:

There are many options and endorsements that are offered by your carrier. In addition to reviewing your dwelling coverage and personal property amounts with your agent on a regular basis here are a few tips to make sure a sudden loss does not leave you frustrated because you were not informed. 

Most homeowner policies include the basics like building coverage and personal items, but did you know there are usually severe limitations on items like jewelry, oriental rugs, silver, coin collections, art work and modern electronic equipment?
It is your duty to ask your agent what is and is not covered by the policy and what can be added by endorsement for a nominal fee depending on the item and the value. Also your company may offer extras like identity theft coverage or increased building ordinance coverage for older homes to make sure you have enough coverage to rebuild according to current building codes.

The options are many and you need to ask your agent what is available so you can make the right choices. 

When you receive your annual bill make it a habit to call your agent for any changes in your policy as well as options available.

Condo?

If you buy a condo today your lender will likely require you to carry an insurance policy known as an HO6, or “walls in coverage” which provides for liability & personal property as well as “building coverage” to supplement the Master Policy for the Association.
Typically most master policies stop their coverage at the interior walls of each unit & therefore lenders want the borrower to provide “walls in” coverage up to 20% of the appraised value. The building coverage in an HO6 provides for additions and alterations to your unit such as built-in appliances, cabinetry, wall, window & floor treatments that the association makes your insurance responsibility. 

The buyer needs to work with their agent & lender to reach a desired amount that will satisfy all parties in case of a loss.

Buying insurance is a balance between protecting yourself in a loss and your budget. I see far too many under insured cases when doing refinances. Have you checked your coverage in the last 12 months?

Talk to your agent.  If you need one you trust looks out for you get a good referral.

Questions about credit, mortgages or commercial loans?
 
Ask David Garrett  
310 456-1056

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A Mortgage For Fred

57I don’t recall if Fred Flintstone had a mortgage. Or Barney, for that matter. They both had jobs, cars (sort of) and kids so they probably had mortgages.

 

If so the only thing that changed since then is the amount of paperwork. Of course that would be the case as there wasn’t any paper then.

 

Sammy Grindstone, the loan officer, asked the same questions we do today so that First Bailout Savings got its money back. Like today they wanted payments on time and not Fred’s house instead.

 

Today we have credit reports, computer loan approvals, automated appraisals and lots of lender rules, hoops and stupid requests. All of this sophistication is to assess risk – will the mortgage be paid back as promised?

 

Well, we all know that it didn’t work so well recently. That was because lenders stopped checking if the loan would be repaid.

 

No more — but the good news is rates are still very low and home prices, while up, are only back to 2004 levels. The loan process today is an excellent check to make sure the payment is manageable for the long haul.

 

58Getting A Mortgage

 

When someone applies for a loan these are the age-old questions:

 

  1. CAN you repay the loan? Do you have sufficient, predictable income and is it enough? No surprise you need to show tax returns and paystubs and employment of at least 2 years
  2. WILL you repay the loan on time? A credit report is evidence of a willingness to make payments. The longer you have had credit, used it and paid back on time the better chance you will continue to do so. No credit? No way to know.
  3. DO you have “skin” in the game? That’s what a down payment is and the bigger it is the more beans for dinner if income problems arise.
  4. DID you save enough for the down and for a “rainy day”? These are called “reserves” and why bank statements are needed.

 

Reasonable questions, yes?

 

Of course most loans today go to Fannie Mae, Freddie Mac, FHA or VA so we are dealing with government, not so much businesses. Crazy, stupid, nonsense stuff sometimes but they all start with answering the same 4 questions

 

Fred did.

 

Questions about credit, mortgages or commercial loans?
 
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310 456-1056

 

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5 Credit Myths

Paying bills on time will improve my credit score – Since 35% of your score is based on your payments being on time it will only continue to raise your credit score slowly over time. Remember that if payment history only accounts for 35%, there is still 65% of your score that has nothing to do with missing payments.

Cancelling credit cards that you haven’t used in a while will increase your credit score – Cancelling unused credit cards can actually hurt your credit score. Since 10% of your score is based on the length of your credit history, it is a good idea to keep the oldest credit card open.

When you get a divorce, your accounts automatically divorce with you – This couldn’t be further from the truth. If you have a joint account and one of the parties on the account is late, you are both late. With some types of loans, such as a mortgage or a car loan, the lender may not accept a letter asking you to be removed from the account after a divorce even if that property is going to your ex-spouse. They will need to qualify for the loan on their own before you will be removed from the account. Take this into consideration because if they don’t refinance, and then have late payments, you may find yourself with some credit issues. When possible, close all joint accounts and refinance any debt separately. If it is not possible, maintain some type of control, whether it is an escrow account or at least access to information to make sure the accounts are paid on time.

You have to make a huge financial mistake for your credit score to be negatively affected – You don’t have to be fielding collection calls at all hours for your score to suffer. In fact, one late payment can be detrimental, sometimes upwards of 110 points off your credit score. For one late payment!! Also, something as simple as opening up a few store credit cards for the promotional discount can make you look like a credit risk.

Short sales are better than foreclosures – the assumption is that a short sale is actually better for your credit score than a foreclosure. But in reality, they have the same effect. It is certainly better for the neighborhood housing prices than foreclosure, but from a credit score perspective, there is no difference.

Do not dispute items with the bureaus online. This is the worst thing you can do when trying to help your credit score because when the user signs up, they are agreeing to the disclaimers (which everyone does NOT read) stating that once the information comes back, they are agreeing to whatever results the bureaus decide. There is no going back and disputing again.

Remember to check your credit history regularly.  You can do for free at www.AnnualCreditReport.com so do one bureau every 4 months and it won’t cost you a dime.

As always, if you have any questions about credit, mortgages or commercial/business loans –

Ask David Garrett  310 456-1056

askdavidgarrett@gmail.com

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