Why Should I Buy a Home vs. Rent?

buying a home vs. renting

In my early thirties, I asked myself why should I even think about buying a home vs. renting?  It seemed so much easier to just rent… except for things like schlepping my stinky garbage in my car down to the dumpster or always having to dodge the kooky neighbor who lived too close for comfort.  After a royal wipeout while sprinting through a parking lot thunderstorm to my apartment, the merits of owning my own garage and driveway became painfully clear.  I shifted focus to a different kind of simplicity.  The kind that control over your own space gives you. Bonus points if neighbors could be separated by ample terra firma on all four sides. And, yeah… a wheeled trash bin at my curb would be fab.

money out the window

Of course I knew it would be a smart move financially to buy, if I could pull it off.  I had heard the key reasons to invest in real estate:  to preserve capital, build wealth for yourself and enjoy tax relief. (More on that here.)   And I took stock in the stats that said my net worth would become 30-45% greater as a homeowner than as a renter.    Then I found out that I could own a home for about as much as I was paying in rent.  Rents were high, escalating rapidly and I kissed that money goodbye every month.  I just needed to get a grip on the details of the mortgage process and take the plunge.

That was then and this is now…

Beyond the general wisdom of investing in real estate, when rents equate with what a mortgage payment would be on a starter home, it makes extra sense to pay yourself, not a landlord. This is the case now in many areas of the country.

The most pressing reason for this parity these days is because of your ability to borrow money on the cheap. Mortgage interest rates are dirt cheap at roughly 4-ish percent. They haven’t been this low for 40 years! See the graph showing 1971-2011. In fact, rates hovered around 10% for over a decade in the 70’s and 80’s… and they’ve been as high as 18%! Interest rates are so low at present, there’s really only one direction they’re headed. Up. Wouldn’t you just kick yourself to have to pay double or triple to borrow money, because you waited?

~Probably the most crucial element in buying a home is the amount of interest charged
that allows you to borrow money to buy it ~

cheap money

 

If I had waited a just few months back in 1994 to pull the trigger to buy my first place, I would have paid 3% more in interest by the start of 1995. That difference would have increased my total mortgage payment significantly enough to make that house unaffordable. My buying power would have been diminished. Finding a lesser-expensive home would have been an unattractive option, in an undesirable neck of the woods. My buying capacity was “entry level” in the first place!

 

 

build equity

A horse of a different color

So, my rent payments became mortgage payments. A very attractive painted pony. I wasn’t just throwing money out the window every month. My monthly mortgage payment was actually going right back into my pocket. It was like a ready-made savings account because I was building equity in my home ownership.

Equity builds in two ways. First, you own more of your home as you pay down the principle. Secondly, property values rise / appreciate. Historically, real estate has had a long-term, stable growth in value. In fact, median single-family existing-home prices have increased on average 5.2% each year from 1972 through 2014 according to the National Association of REALTORS®.  Even in the last ten years– with the recent housing crisis in the mix– values are still up 7.0% on a cumulative basis.  Demand for housing is expected to increase 10 to 15 percent over the next decade as well, which will aid in future home value appreciation.

Saddle up and ride

Need a new car? Want to travel? Need some cash for that? There pretty much is an APP for that. You can basically take a withdrawal from your “savings account” once you’ve built up an equity stockpile. You can take out a home equity line of credit (HELOC, which is a second mortgage) or do a cash-out refi in a few short years (redo the first mortgage for the home’s higher value and take the equity difference between it and the old loan balance in cash). You have powerful options to control emergencies or plan for special life events by way of tax-free financing, all while still grilling in your own backyard.

lasso the moonHaving more control of your destiny gives you greater peace of mind. At minimum, just knowing that your fixed-rate mortgage payments won’t rise over the years is stability that renters don’t have.

Speaking of stability, when you become a “Homeowner”, the world deems you as more stable and a better credit risk. With this new and improved status, come other perks that save you money. You get better rates on car insurance.   You get better interest rates on car loans and furniture financing plans.  You even get a more favorable nod from employers over your competition when job seeking.

 

not your first rodeoYour first rodeo

So, why should you bite the bullet and buy your first home asap? Because home ownership is the most readily-doable pathway to wealth building, especially with the current ability to use other people’s money cheap. It’s a rare, leveraged investment… you can’t put down $5K for $100K worth of stocks! (Learn how you can afford to buy a home by giving yourself a raise here.)

And you don’t have to be uber picky. Your first home is not going to be your “Forever” home. Look at it as your stepping stone to wealth building. You’ll sell it and cash in on its appreciated value. You can then move up to a better home purchase the next time with a hefty down payment at the ready. The younger you are when you start, the better.

(Now, what if I told you there were programs that eliminate the need for saving money for the downstroke?! Zero down and zero closing cost programs do exist and are not scams. Far from it. Stay tuned Kemosabe… I’ll show you HOW to find the money.

Roll through to the rest of my series: “The Benefits of Buying New-construction Homes vs. Pre-owned”; “All About Boosting Credit Scores” and “What is Debt-to-Income Ratio?


“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

How Can I Afford to Buy a Home?

you can afford to buy a home

How can I afford to buy a home?!  Alas, money doesn’t grow on trees.  But there are ways to make it materialize rather magically.  This is Part 1 in my series to show you how.

Give yourself a raise

To begin to answer the question, “How can I afford to buy a home?!”, you need to make a paradigm shift to giving yourself a raise. Now, go with me on this…

Let’s start with a basic premise regarding income. Where the rubber meets the road is:  It’s not what you EARN, it’s what you get to KEEP.

afford a houseBasically, we’re talking about how much you have to pay Uncle Sam in taxes.  So logically then, it follows that having more tax write-offs yields you more income.  Just ask The Donald.  He’ll be happy to reiterate his very smart, tax write-off prowess. Mr. Trump built his empire via real estate by, ”taking advantage of the Tax Code”.  And so can you.

 

tax deductionsTax Deductions You Can Bank On

When you own your home as opposed to renting, it’s like giving yourself a pay raise. You are able to deduct $$$ against your federal income tax bill at the end of each year, thus keeping more of your hard-earned money in your pocket.

~ You’re allowed to reduce your taxable income by the amount of interest paid on your mortgage loan each year
~ You can deduct your real estate property taxes
~ Depending on the type of loan, it’s possible to write-off mortgage insurance premiums too
~ Interest deductions may also be taken on home equity loans

reduce taxesFor illustration, here is a typical client who recently bought a $300K-ish home on a 30-year fixed loan.

(The mortgage interest and property taxes are elements of your monthly payment known as PITI or Principal, Interest, Taxes and Insurance. You receive a statement at the end of the year that breaks this out for tax purposes.)

Once you tally the total nut you paid, you then multiply your total deduction by your tax rate/bracket. My client and her husband are in the 28% earnings tax bracket, so they reduced their Uncle Sam bill by $3,522! ( 12,577  X  28% tax bracket)  See below to find your tax bracket percentage based on how much you earn.

income tax brackets

If you can Afford to Rent, You can Afford to Buy

Extrapolating further, this couple has effectively gained $293 of income per month ($3521 divided by 12 months). That didn’t happen when they were renters.

you can afford to buy

Even though they are paying a couple hundred dollars more monthly to own, over what their rental payment was, it is more than offset by cash savings from tax benefits.  You can afford the monthly nut to buy a home after all!  It’s a net gain. Homeownership with a mortgage is absolutely the best tax shield for everyday people out there.

energy tax creditsOther tax benefits as time goes by…

As time goes by and you decide to make upgrades, there are also many local, state and federal energy-efficiency related tax credits. The federal Nonbusiness Energy Property Tax Credit lets you claim a credit for installing energy-efficient home systems. Tax credits are especially valuable because they let you offset what you owe the IRS dollar for dollar, in this case for up to 30% of the amount you spent on certain upgrades (even labor/installation costs).

pay yourselfAnd don’t forget the fundamental notion of why owning trumps renting… because of building equity over time. Every time you make a mortgage payment, you are paying yourself, not a landlord.  Building equity in your home is a ready-made savings plan.  And when you sell, you can take up to 250,000 ($500,000 for a married couple) as gain without owing any federal income/capital gains taxes also!

If you want a yard for the kids, fur babies, or an outdoor garden, or just hate schlepping your garbage to a distant dumpster, then I hope I’ve helped you to make a mental shift to making home ownership happen.

This article provides general information about tax laws and consequences, but shouldn’t be relied upon as tax or legal advice applicable to particular transactions or circumstances. Consult a tax professional for such advice; tax laws may vary by jurisdiction.

Roll through to the rest of my series:Why Should I Buy a Home vs. Rent?”;  “Show Me the Money to Buy a Home!”;  “The Benefits of Buying New-construction Homes vs. Pre-owned”; “All About Boosting Credit Scores”  and “What is Debt-to-Income Ratio?


“So, who can help me with all of this?, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.”

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

Show Me the Money to Buy a Home!

financial assistance programs

There are a wide variety of financial assistance programs that help you achieve your dream of home ownership. Many home buyers either don’t know about these programs or think they don’t qualify. You just need someone to show you the money. And contrary to popular belief, you could quite possibly qualify for an amazing array of layered benefits.

Home buying is intimidating when you are unfamiliar with the process and terminology, not to mention the myths. It keeps you immobilized. So let’s get educated and moving forward.

Myths Abound!

THE REALITY IS:

– You DON’T need almost perfect credit
– College loan debt MAY NOT be an obstacle to qualification
– You DON’T always need 20% down payment to avoid paying mortgage insurance as with conventional loans
– You DON’T have to live out in the boonies
– You DON’T necessarily have to be low income to be eligible
– You CAN use your IRA funds to buy your first home without paying a penalty for early withdrawal!
– Not all programs are just for the first-time home buyer. Move-up borrowers and retirees can partake too.

In fact, some lenders define a first-time home buyer as: A) a person who has never purchased a home; B) a person who has not owned a home in the last 36 months; C) a person who has gone through a major life change with documentation such as: divorce, death, or deployment.

free moneyHow much can I get?

There are hundreds of millions of dollars available to cover your down payment and closing costs from a variety of sources nationwide to help you buy a home. Federal, state and local housing finance programs provide the money… even ZERO out-of-pocket plans!

There are 2,290 down payment programs across the country waiting for home buyers to apply for funds, according to a joint analysis recently issued by RealtyTrac, a real estate data provider, and Down Payment Resource, a purveyor of home-buyer assistance programs. The average amount of down payment assistance per buyer is$11,565, according to the analysis.

Then, it is also possible to layer programs together, like one for the down payment and one to cover closing costs.

Let’s take a look at some of these affordable lending programs:

Government-sponsored Loan Highlights

These first-mortgage loans carry an explicit guarantee from a federal government agency. The loans themselves are originated by private lenders who apply to the applicable government agency for the guarantee on the loan.
Freddie Mac “Home Possible” loan
– As low as 3% down payment financing of a home’s purchase price
– 30-year fixed interest rate mortgage loan
– Typically 620+ credit score
– Flexible underwriting permits lenders to use make-sense guidelines when necessary a la for student loan debt problems
– Available to first-time home buyers, move-up buyers and retirees
– For low & moderate income borrowers

Fannie Mae “Home Ready” loan
– Guidelines similar to Home Possible loan by Freddie gov’t. agency
– A “green” loan that allows $100K for home repairs or green/energy-efficient upgrades

FHA 203(b) loan
– As low as 3.5% down payment financing
– 30-year fixed interest rate mortgage loan
– Typically 580+ credit score
– 50-55% debt-to-income ratio
– FHA allows the Lender or Seller to pay a maximum of 3% toward Buyer closing costs
– Has an upfront fee which is added to the loan amount at closing and an annual fee which is divided up (by 12 mos.) and added to your monthly payment for the life of the loan, thus increasing the size of the monthly payment.

FHA 203(k) loan
– Similar to standard FHA(b) loan, but is a purchase and rehab (up to $35K) financing plan in one loan

VA (Veterans Administration) loans
– ZERO down payment financing
– 30-year fixed interest rate mortgage loan
– Typically 620-640 credit score
– 41-45% debt-to-income ratio
– Minimal closing costs to the buyer
– Has a funding fee; borrowers have the option to pay it upfront at closing or roll it into their monthly mortgage payment. No additional fees thereafter.
– Must be an active duty service member or an honorably-discharged Veteran.

USDA  (U.S. Dept. of Agriculture) 502 loans
– ZERO down payment financing and low interest rates
– 30-year fixed interest rate mortgage loan
– Typically 580-620 credit score
– 41-50% debt-to-income ratio
– The program allows the Lender or Seller to pay ALL closing costs
– Has an upfront fee which is added to the loan amount at closing and an annual fee which is divided up (by 12 mos.) and added to your monthly payment, though it declines each year.
– There are geographic restrictions of where the home can be located to qualify
– There is an income limitation; cannot earn more than 115% of the area’s median income, which varies by county.
(In Austin, TX, Travis county, you could earn as much as $89,500. per year and qualify!)

layered benefitsLayer the Benefits, Baby~

Also part of the first-mortgage loan origination process, are MCC programs (Mortgage Credit Certificates). They are federal income tax credits administered by state and local housing agencies to help first-time home buyers and can be layered together with FHA, VA and other state loan programs. (Not all states have MCCs and programs vary.)

– The MCC credit is worth 15-20% of the mortgage interest that the
borrower pays each year on their loan

– It is applied as a credit to the federal income taxes that the borrower owes each year; usually $1000-2000. a year, every year they own the home

– This value of the MCC credit can be added to the borrower’s loan
application as extra income to boost their buying power!

– In Texas, “first-time home buyers” includes people who have not owned
a home for three years.

down payment assistanceUsing Texas, here is another example of layered home-buying assistance programs, administered by the State Affordable Housing Corp.The “Homes for Texas Heroes” and “Home Sweet Texas Home” loan programs are low interest-rate loans paired with down payment assistance Grants.

The Homes for Texas Heroes loan programs are available for veterans; teachers; teacher’s aides; school librarians; school nurses / counselors; college professors for nursing or allied health programs; fire fighters, EMS personnel; police and correctional officers; county jailers; security officers; peace officers and low and moderate-income homebuyers. Otherwise, the Home Sweet Texas loan programs are similar for non profession-specific buyers.*

These loans and home down payment assistance programs are available anywhere in Texas through a network of lenders and provide the following benefits:

texas down payment help– A 30-year fixed interest rate mortgage loan
– Down payment assistance % is based on the total mortgage loan amount
– The down payment assistance is a gift that never needs to be repaid.
– No upfront points or fees are taken out of the down payment assistance
– You do not have to be a first-time homebuyer
– You do not need to live in the home for any set period of time
– Generous debt-to-income ratio of 45-50%

*Individual buyer must be at or below 80% of area median family income. Travis, Hays, Williamson, Bastrop and Caldwell counties; $61,440 – 88,320 depending on which program. 640+ credit score.

This is a broad overview. Regional and local lenders have additional programs. New construction builders also offer wonderful plans and incentives.  I can guide you to the best mortgage programs for your specific needs and counsel you through the paperwork for smooth sailing to closing on your new home.

Roll through to the rest of my series:Why Should I Buy a Home vs. Rent?”;  “How Can I Afford to Buy a Home?!”;  “The Benefits of Buying New-construction Homes vs. Pre-owned”; “All About Boosting Credit Scores”  and “What is Debt-to-Income Ratio?


“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

Benefits of Buying New Construction Homes vs. Pre-owned Homes

new construction home benefits vs. pre-owned homes

As you weigh whether to buy shiny new construction or a charming pre-owned home, here are some factors to consider.

Today’s supply and demand housing market is way out of kilter. Due to historic low interest rates and the 2009 economic meltdown, supply is very low and demand is incredibly high. There are not enough resale homes on the market across the country to meet this demand and thus home values are increasing rapidly. Often, multiple buyers bid on the same home, thus driving the price up even further. This is not good for buyers.

appraisal problemAppraisal Problem

One major challenge in such a market is the bank appraisal. If prices are surging, it is difficult for appraisers to find adequate, comparable sales (similar houses in the neighborhood that closed recently) to defend the selling price when performing the appraisal for the bank. Deals fall apart when an appraisal falls short of what a buyer is willing to pay. Mortgage lenders won’t approve a loan for more than the appraised value– many times even if the Buyer has the extra cash to makeup the shortfall with more of a down payment. New home builders, by contrast, have their own in-house lenders who have already approved the home package prices. Problem averted.

builders deal in volumeNegotiation Power

In the current market, new homes may be a better deal than resale homes. New construction builders deal in volume. They build in phases, one parcel or batch of homes at a time, then they move on to a new patch of turf. They need to sell product before they get a new influx of funds from THEIR lender to build more homes. They can absorb a dip in profit on a house here and there in the bigger scheme of things. By contrast, private home owners have much more invested in their family hacienda and are usually much less motivated or able to drop their price by thousands of dollars.

Resale home owners may be willing to deal somewhat, but it is easier to consistently negotiate thousands (five figures) off of a new home purchase for my clients from a builder. Not to mention, negotiating home prices to include a 10-year, whole-house warranty, upgrades, a range of floor plans to choose from and the lot-of-your-choice price. These bonuses don’t happen with a resale home.

zero down paymentGreat deals can be found if you find the right buyer’s agent who specializes in new homes because their experience, relationships with builders and negotiating ability will help you save thousands.  Real estate agents know that builders often have mortgage subsidiaries or affiliates, and are able to custom-tailor financing — down payments, “points,” other loan fees and even interest rates — to your specific situation. It is also possible to get them to help defray your closing costs at settlement.  Sometimes even pay ALL closing costs.  Zero down,  zero total move in costs is possible!

The latest in layout, or just outdated?

With new construction homes, you can often participate in the design of interior spaces with the builder, in advance of actual construction. Rooms tend to be larger with more open flex space and brighter, with lots of natural light to begin with. Plus, many new homes come with “Smart” technology options allow you to automate internet, cable, speakers, HVAC and alarm systems. The sophisticated wiring that’s needed for high-speed electronics and communication equipment, entertainment centers and security systems is concealed inside the walls.

latest home designWhen you buy a resale house, you get what’s already there. That may include room layouts, low ceiling heights and lighting that may have made sense in yesteryear — formal dining rooms, small kitchens, fewer bathrooms and windows,  for example, that are expensive to remodel.  You must examine the priorities you put on functional arrangements of interior living spaces and whether moving walls around to create the types of open spaces that make sense today, is worth it.  Your desire, budget and aptitude when it comes to making repairs and capital improvements factors into most every resale home.

 

replacement costsWear & tear replacement costs

They are the unadvertised costs of used homes. Even if you contracted a professional inspector prior to purchase, things can blow shortly down the road.

By definition, with a new house everything is new, including costly components — such as the furnace, water heater, air conditioning unit, kitchen appliances, roof, doors, windows and more. In a new home, most of these components come with a warranty, often for up to 10 years. With a resale house, the equipment and structural features you buy have been in use for awhile, and may be close to needing replacement.

Consider some of these typical capital improvements that may be part of the true cost to you over the early years of a purchase of an existing house:

– Heating and Air Conditioning: The typical furnace has a 20 year life expectancy; the typical central air system 15 years. Replacing them could cost you $5K (AC unit) and $4K and up for the furnace, depending upon the system you choose.

– Flooring/Carpeting/Tile/Hardwood Floor refinish: You’re virtually guaranteed to replace some carpeting in a resale home and you may need to upgrade other flooring or finishes. Costs can run anywhere from a few thousand dollars to well over $15K, depending on your choices and square footage.

– Roof: the average shingled roof lasts about 25 years. Replacement costs can be anywhere from $5,000 up.

– Exterior Painting: With a new house, you get to select the color. With an existing house, there’s a good possibility you’ll want to repaint. Typical cost: $5,000 and up.

– Interior Painting: Again, with a new house, you choose the wall colors of the rooms as part of the package. With an existing house, you’re probably going to want to repaint some of the interior. Even if you DIY, it will cost time, money and disruption.

– Kitchen Remodel: think anywhere from $20,000 to $40,000.

– Master Bath Remodel: $15,000 and up.

homeownership costsMaintenance

A newly-built home requires less maintenance since everything is brand new. This means you can better predict monthly homeownership costs, since you’ll likely spend less to maintain your home.

 

green building techniquesThe latest in energy efficiency

If you care about “green” — whether that means the money you spend on energy bills every month or your concern about the environment — a newly constructed home is virtually always the better option for substantial savings. New homes save money with energy efficiency and green building techniques. More efficient wall and roof insulation, doors and windows create buttoned up homes that are less expensive to heat and cool than older houses. New appliances and home HVAC systems are also more energy efficient. All of that translates into lower utility bills.

Many new homes are taking advantage of the Energy Star standard which sets forth a number of requirements that products must adhere to in order to achieve an Energy Star rating. In addition to Energy Star, many builders are now offering green building like the installation of solar panels on the roof of a home to harness the sun’s energy and convert it to electricity. If you install enough solar panels you may just have the electric company paying you for the electricity you are producing! These features are often very costly to retrofit a resale home with if it wasn’t initially built to these standards.

An added bonus, those new HVAC systems offer better air filtration which increases indoor air quality, reducing symptoms for those who have asthma or allergies. New homes also often use low- and zero-VOC (volatile organic compound) paints and building materials, which also aid air quality.

basic-fire-safetySafety features

Newly-built homes come with modern fire retardants in materials such as carpeting and insulation, unlike most existing houses. Builders also hard-wire smoke and carbon monoxide detectors into their homes, making it unnecessary for new owners to install less-dependable battery-powered detectors. Many builders also back up their hard-wired detectors with battery power to handle electrical outages.

amenitiesAmenities & lower taxes

Buying new construction often means buying a lifestyle. Master or planned communities usually include amenities like parks and community spaces that are close to schools and shopping. Developments in outlying areas offer a feeling of a small hometown as well as lower property taxes than in the urban metro. Because planned communities are encapsulated and fenced, they are usually safer as well.

stress less movingMoving-time flexibility

Since the median time to complete new construction is five months for single-family homes and six months for condos, it allows you to feel less rushed when planning your move-in. If you currently rent, you can go month-to-month once your lease term is up to allow for more flex time on the packing-up and moving-out phase too. Schedule at your convenience.

With resale purchases, the seller wants you to close on your loan in thirty days. Then you are forced to scramble to pack and move before you’ll be paying on two residences!

new home warrantyResale value

You may plan to live in your next home many years, but at some point, most people sell a given home for any of a myriad of reasons, like moving to a bigger home to accommodate a growing family, moving down to smaller digs when children are gone, moving across town or across the country for another job, etc. While the home you sell will, by definition, no longer be new, a 5-year old home will often be more desirable — given all the features above — than a 25-year old home at resale.

You’ve already purchased all the appliances and upgrades for the home and many parts of the home are still under warranty making the home a great inclusive value. This will compare favorably to older resale homes that may require renovation or updating to make it livable for the modern home buyer.

Roll through to the rest of my series: “Why Should I Buy a Home vs. Rent?”;  “How Can I Afford to Buy a Home?!”;  “Show Me the Money to Buy a Home!”;  “All About Boosting Credit Scores” and “What is Debt-to-Income Ratio?” 


“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

All About Boosting Credit Scores

boosting credit scores

How do you boost your credit score? Let’s start with, “what is a FICO Score?”

A FICO Score is a number that credit-granting companies use to assess an applicant’s risk. Credit scores range between 200 and 850. The higher the score, the lower the risk. Above 620 is considered desirable for obtaining a mortgage.

There are five factors that comprise the credit score. These are listed below in order of importance, just as a loan underwriter will look at the score:

35% impactON-TIME Payment History: 35% impact

Paying debt on time and in full has a positive impact. Late payments, judgments and charge-offs have a negative impact. Missing a high payment has a more severe impact than missing a low payment. Delinquencies that have occurred in the last two years carry more weight than older items.

Just plain pay your bills on time. Seriously. Your payment history – including the ones you pay late or skip altogether – makes up a whopping 35% of your FICO score. If you’re absent-minded or merely overwhelmed, then automate your payments or see if your online banking portal can send you an email or text reminder.

Going from paying one or more bills late each month to paying all on time could show score improvement in one to two months.

30% impactCredit Utilization Ratio (aka available credit): 30% impact

This ratio is the difference between the outstanding balance and the available credit on credit cards. Ideally, you should keep your balances below 10%- 30% of available credit limits per card.

For example, suppose your VISA has a $1,500 limit and you routinely charge a grand a month. It doesn’t matter if you pay it all off before it’s due. What matters is the credit bureaus think “Gina is using two-thirds of her credit! What a spendthrift!”

If you’re just cash averse, try to pay your bills twice a month. Using too much of your credit limit at any given moment doesn’t look good. Suppose your limit is $3,000 and a month’s worth of havoc (car repair, doctor bills, plane ticket to a wedding) means you’ve charged up $2,900. Sure, you plan to pay in full by the 18th of the month – but until then it looks like you’re maxing out the card. Instead, make one payment just before the statement closing date and second one right before the due date. The first will likely reduce the balance that the credit bureaus see and the second makes sure you won’t pay interest or a late fee. Or…
Raise your credit limit. Ask your creditors to increase your limit. Request double the previous limit. Be careful with this one, though: It works only if you can trust yourself not to increase your spending habits accordingly.

However, the easiest way to boost your utilization is to use a credit card and pay your balance down to 1% of your credit limit every month. You want to have positive utilization so it’s clear you are using the card, but otherwise want your ratio to be as low as possible. Estimated time for improvement: One month

And, BTW, transferring credit card debt from one card to another could actually lower your score.

15% impactLength of Credit History: 15% impact

This marks the length of time since a particular credit line was established. In general, the longer an account has been open, the better. It gives a longer picture of your habits.

Don’t close any cards. Canceling a credit card will cause your available credit to drop, which doesn’t look good to a bureau. One way to keep a card active is to use it for a recurring charge such as a utility bill.

10% impactCredit Mix: 10% impact

Think diversity. A mix of auto loans, credit cards, and mortgages is more positive than a concentration of debt from credit cards only, because it indicates whether a person can handle different kinds of accounts.
Mix it up. Using different kinds of credit can make for a modest boost to your score. For example, you might take out a small personal loan from the credit union or buy a piece of furniture or appliance on installment, rather than charging it on a VISA or MC.

It will also increase your total outstanding credit line, and thus your utilization ratio should improve too. But, don’t go nuts—try opening just one new account, at least at first. If you apply for a card every time you’re asked whether you want 10% off your purchase today, you’ll take a hit on the number of recent inquiries . And that won’t look good.

Estimated time for improvement: One to six weeks, based on processing and reporting your new account to the credit bureaus.

10% impactInquiries: 10% impact

This quantifies the number of inquiries that have been made on a consumer’s credit history within a six-month period. Having too many credit applications can lower your score. Each hard inquiry can cost from 2 to 50 points on a credit score, but the maximum number of inquiries that will reduce the score is 10. In other words, 11 or more inquiries in a six-month period will have no further impact on the borrower’s credit score. However, multiple inquiries about your credit score from the same type of lender are counted as ONE, if submitted over a short period of time– like shopping for a car or a mortgage over a 30-day period.

annual credit report3 Tricks to boost your credit score fast

The first thing to do is get a copy of your credit report from AnnualCreditReport.com. The three major credit reporting bureaus must give you one free copy per year. Get yours, then begin by:

1. Dispute errors
Mistakes happen. You can dispute errors online through Equifax, Experian and TransUnion. After you’ve fixed any foul-ups, you might try to…

2. Negotiate
You can’t deny that you stopped paying a credit card bill when you were unemployed last year. But you can ask creditors to “erase” that debt or any account that went to collection. Write a letter offering to pay the remaining balance if the creditor will then report the account as “paid as agreed” or maybe even remove it altogether. (Note: Get the creditor to agree in writing before you make the payment.)

You might also be able to ask for a “good-will adjustment.” Suppose you were a pretty good Visa customer until that period of unemployment, when you made a late payment or two – which now show up on your credit report. Write a letter to Visa emphasizing your previous good history and ask that the oopsies be removed from the credit report. It could happen.

3. Become an authorized user
Have a responsible partner or family member? Becoming an authorized user on one of their accounts will let you piggyback onto their good credit history.  The full history of the other account shows up on your credit report immediately. And when this older, established credit account is added to your credit history, it results in an increase in the average age of accounts you’ve ‘managed’ — which also increases your credit score.  Just be careful to make sure the person you choose actually pays his bills on time and keeps the debts low—just like good credit history, bad history will show up, too.  Estimated time for improvement: Immediately

loan tipsMortgage-Specific Tips

TIP
Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less severely for problems after a year goes by.

TIP
It is also better to pay down debt, rather than to use that same flux money to save up for a down payment. Using surplus monies to reduce debt actually boosts your buying power when it comes time for qualifying for a mortgage. In other words, you can afford a more expensive house. This is due to a mortgage-lending metric called debt-to-income ratio. Plus, as discussed here, there are many down payment assistance programs available.

TIP
When a credit report is generated, it is simply today’s snapshot of the borrower’s credit profile. This can fluctuate dramatically within the course of a week, depending on the individual’s own activities. The home mortgage borrower should be made aware of this when they enter into the loan process, and know that it’s not in their best interest to go out on a shopping spree. You need to make sure you’re not creating a negative impact on the score while the lender is reviewing your file.

So don’t order items for your new home on credit. Even if you have been “pre-approved” for your home loan, wait until after your home loan has CLOSED to charge appliances, furniture, etc., as that will add to your debt during loan underwriting.

Roll through to the rest of my series: “Why Should I Buy a Home vs. Rent?”;  “How Can I Afford to Buy a Home?!”;  “Show Me the Money to Buy a Home!”;  “The Benefits of Buying New-construction Homes vs. Pre-owned”; and “What is Debt-to-Income Ratio?” 

If you have a credit score of 560 or better, I can help you!


“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

What Is Debt-to-Income Ratio and Why is it Important?

debt-to-income ratio

When it comes to getting a mortgage, you may think that your credit score is the most important number. Aside from the financial calculations that makeup your credit score, there’s another number that is key when it comes time for loan approval for a mortgage or even a car loan: debt-to-income (DTI) ratio.

A DTI ratio is one of the ways lenders measure your ability to make payments toward money you’ve borrowed. Your DTI ratio is expressed as a percentage.

favorable termsIt’s a balancing act

A good rule of thumb is the lower your DTI, the better. A DTI less than 50% is generally considered workable in the mortgage industry. However, if your DTI is higher than 50%, you may have a difficult time qualifying for a mortgage. If your DTI is 36% or lower, you’ll be able to borrow more, usually at lower interest rates and other favorable terms.

To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income (the amount of money you earn before taxes).

EXAMPLE:

expenses divided by gross income

If you’re in the market for a new mortgage, don’t overlook your DTI. Many people assume that if they have a good credit score and good income, getting a mortgage will be no problem. The fact is that a good DTI also has a huge impact on getting you qualified for a mortgage.

 

consolidate student loansRegarding student loan debt…

As factored into the example above, the median, monthly student loan debt is $203. It can throw your DTI over the edge of becoming a viable mortgage borrower. If that’s the case for you, then do these things before applying for a home loan:

First, wait until the six-month grace period has passed. The six-month grace period after graduation is the absolute worst point in a student loan repayment plan. While you’re waiting, get all your bills in order. It can be the perfect time to work on paying down credit cards and other bills. Even if you have a boatload of student loan debt, paying down other bills can significantly lower that debt-to-income ratio. And that’ll also have the bonus effect of improving your credit score, making you all the more attractive to lenders.

Second, consolidate your student loans if you have more than one, before shopping for a mortgage.

Third, set up an income-based repayment plan, or at least a plan that won’t eat up a huge chunk of your income.

Fourth, consider a deferment or forbearance if you need all the DTI help you can get. These plans allow you to temporarily stop making your federal student loan payments or to temporarily reduce the amount you pay. There are differences between these two things, so do your homework.

pay dayBTW…

Don’t worry too much about your length of job history, or lack there of. Many lenders count your years in college as work history, so long as you’re working at a job that’s consistent with your degree.

 

Roll through to the rest of my series: “Why Should I Buy a Home vs. Rent?”;  “How Can I Afford to Buy a Home?!”;  “Show Me the Money to Buy a Home!”;   “The Benefits of Buying New-construction Homes vs. Pre-owned”, and “All About Boosting Credit Scores”  


“So, who can help me with all of this?”, you may be asking. Someone who specializes in homeownership subsidies and mortgage assistance programs– certified in course training.

Not all Realtors are created equal, a la car mechanics or hair stylists. Many don’t have all the tools in their toolbox. They operate with the only the basic skills of their craft. Many cut corners. Like Realtors® who choose to easily line their pockets by dealing with only flush clientele and high-priced homes.

Keller Williams RealtyThink of me as, Gina, your New Home Guru. More Savings. More Living. I am more motivated and able to do a great job to help you affordably own your next home. If you want to own a home in the Austin area, reach out.

Pull the trigger, you’ll be glad you did. I will show you the money!

Guide to Austin Residential Styles

Austin Residential Styles

Every house has a style. Sometimes it has two or more, because of eclectic architectural mixes or renovations. Fitting a home into one specific category can be daunting, but let this be your overarching guide to Austin residential styles.

The architecture of Texas through the ages has certainly traced the cultural history of the state. From the missions built by Spanish settlers to the log cabins constructed by Anglo-American pioneers, the Spanish Colonial/ Mexican style era helped form an identity that is still uniquely Texan.

Austin homes reflect the area’s climate and eclectic style. A strong relationship to the outdoors is evident in these houses — a response to the relatively warm year-round temperatures. It’s distinctive landscape, alternatively lush and dry, calls for architecture that optimizes shading and ventilation in a variety of ways.

Continue reading…

3 Ways Good Realtors Protect Your ASSets

Realtors protect your assets

For every hour an agent spends in your presence, he or she will spend an average of nine hours behind the scenes working on your behalf and to protect your assets. Why? Because agents don’t get paid if they don’t close the deal for you! Unlike lawyers who bill by the hour, agents won’t receive a penny until– or unless– a sale comes to fruition. It’s all a gamble, in which they could come away with bupkis. Here are the top ways Realtors protect your assets:

asleep at the wheel

Good Realtors Don’t Let Their Clients Drive Drunk

Shopping for a home before getting pre-approved for a mortgage is like driving buzzed… you know you have the desire to drive home, but not the wherewithal to get there effectively. You’re seeing things through rose-colored shot glasses.

Getting fully pre-approved for a home loan averts the sobering bummer of having your lofty dream home vision collide with what you can really afford. In fact, good Buyer’s Agents won’t even drive you around to go house shopping if you’re not pre-approved first.

Continue reading…

What Do You Actually Need to Qualify for a Home Loan?

qualify for a home loan

At first glance, mortgages may look like an endless, rolling sea of numbers. And truth be told, understanding how to qualify for a home loan is enough to make most home buyers feel like they’re melting in a Dali painting.

But that doesn’t mean the math has to be surreal—all you need is our handy primer to help you decipher the main figures that you really should understand. A basic understanding of how a home loan works can save you major money and ultimately afford you more house.

mortgage meltdown

So be sure to find a lender and Realtor® who are happy to answer all your questions. We’re here to help you avoid a meltdown. Let’s paint the big picture on the core mortgage qualification elements: Credit score, debt-to-income ratio, and down payment.

Continue reading…

Renting vs. Buying: Why 2016 is Key

renting vs buying 2016

Are you a renter who is trying to decide whether it’s time to become a first-time homeowner?

Well, sitting on the proverbial white picket fence may seriously get pricklier if you wait much longer, because 2016 is projected to be a pivotal year.

fence sittingLet’s consider the cost of renting vs. buying… and the cost of waiting too long for the simple joys of wheeling your trash can and fetching your mail at the end of your own driveway.

Due to the economic meltdown of 2008 that we know all too well, the ‘powers that be’ who regulate our national economy have been keeping home loan interest rates at an all-time historical low for several years to stimulate the economy. In the not-so-sexy chart below, you’ll see that rates haven’t been this low in 45 years! How long can they stay this low? Pretty much, there’s nowhere to go but up. All the buzz is that unemployment is way down and the economy is on the mend, so lenders have begun to raise rates this year and it’s projected to continue for a long while.

Continue reading…