Your credit score is one of your most powerful tools for planning your financial future –mostly because it determines the terms of loans like mortgages. Unfortunately, there’s a lot of misunderstandings about FICO scores, and it can lead you to miss out on the benefits of your credit.
Myth #1 Checking Your Credit Lowers Your Score
There’s a difference between you checking your credit and a creditor checking your credit. When you apply for credit, the creditor conducts “a hard inquiry” to review your rating. Only hard inquiries affect your score. Inquiries stay on your report for 24 months, but only the ones from the past 12 months affect your score.
The good news is that one or two inquiries a year are nothing to worry about. But have been applying for credit or loans more than three times a year, it may start lowering your score.
Myth #2 Your Debt-to-Income Ratio Affects Your Score
Debt-to-income ratio is the amount of monthly debt obligations, like car payments, compared to your monthly gross income. Credit bureaus don’t have access to your income so there’s no way for them to factor it into your score. DTI ratios are most often used to determine how much home you can afford. Considering this, it’s a good idea to lower your debt to get a larger loan. However, when it comes to your credit score, your debt-to-income doesn’t affect it.
Myth #3 The Higher the Debt, The Lower the Score
Not all debt is the same! Debt from a mortgage, even a $300,000 mortgage loan, is considered “good debt” because a home is a financial investment. $15,000 credit card debt, on the other hand, is bad debt.
Keep your credit balances low, preferably below 15% of the credit limits, and you’ll be on your way to maintaining your FICO high.
Myth #4 Paying Off Collections Raises Your Score
This one is surprising. Once a collection agency is involved, your score is going to take major hit. Even after you pay off or settle the debt, the delinquency will still show on your report. The only way to remove it is by disputing it with all three major credit bureaus. It’s not easy but worth the effort!
Myth #5 Your Credit Becomes Joint with Your Spouse
When You Get Married Getting married doesn’t automatically include your spouse on your credit nor does it add you on theirs. If you want to be added to their account and possibly reap the benefits of their credit score, your spouse needs to call creditors to have them add you.
Myth #6 A Better Job Means You’ll Have a Better Score
Despite credit bureaus having your employers information, they don’t have access to your salary or yearly income. So a better paying job won’t affect your credit score. On the other hand, higher income could mean you can now pay down debt –and that definitely increases your credit score!
Myth #7 If You Don’t Use a Credit Card, You Should Close It
The longer your credit’s open, the better it is for your score, so you never want to close credit cards. However, creditors may end up closing it if there’s no activity so try to use it (and pay it off) every month to keep it open.
Myth #8 Opening a Credit Card will Hurt Your Score
This myth is a little tricky. While opening a new credit account will make your score drop initially, it’s only temporary. After a few cycles of payments, your new credit will start to rise again and even improve from where it was in the first place.
Myth #9 One Late Payment Won’t Lower Your Score Much
Payment history is the most significant factors in your FICO score. Even just one payment that’s late by 30 days lowers your score by 50 points or more. Don’t let this happen to you! Set up a reminder or automatic payment schedule and avoid making this costly mistake.
Surprised by some of these credit myths? We bet you’ll also be surprised by how much you qualify for and the great terms Tara Mortgage Services offer (even with less than perfect credit). Contact Tara Mortgage Services today!
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(Every Tuesday we feature a blog from one of our fantastic affiliates, Tara Mortgage Services!)
Pairing the low-rates of an FHA loan with a HUD home one of the best home-buying deals you can get! HUD homes are houses that were once financed with a government-backed loan. However, the owner was not able to make payments, and the home went into foreclosure. The home is now owned by the U.S. Department of Housing and Urban Development and is called a HUD home.
The government will often sell these below market value, but the perks don’t stop there!
Check out these other benefits to buying a HUD home with an FHA loan:
Assistance with down-payment, up to 3% of your contribution!
Assistance with closing costs, up to 5% of the purchase price!
May close faster since HUD homes are already appraised by FHA approved appraiser
Preference as a primary residence buyer over real estate investors looking to just “flip” the home
HUD homes aren’t usually listed on traditional real estate websites, and bidding gets competitive fast. We encourage working with a realtor familiar with HUD home buying. Please contact us for trusted recommendations.
HUD home availability changes quickly, and the bidding competition even faster. So in addition to having a knowledgeable realtor guiding you, you’ll want to be ready with your FHA loan approval letter.
Not using an FHA loan? You can still buy a HUD home!
Although HUD homes are government-owned, you aren’t limited to government financing from FHA or VA loans. You can also purchase a HUD home with a Conventional loan. Also, there’s no special qualification process to buy a HUD home. However, you will be required to own the property for a year before listing it for sale again.
Interested in buying a HUD home? We don’t blame you! The savings you gain from purchasing a home from the government are many. And when you combine it with the advantages of government-backed loans like a VA or FHA, your savings snowballs.
No matter which loan you choose, remember to be ready to move quickly with your approval letter. Start the application today, and you could have your home in time to enjoy summertime grilling in your new home!
(Every Tuesday we feature a blog from one of our fantastic affiliates, Tara Mortgage Services!)
Saving for making improvements to your home is often the least expensive route, but it’s not always possible. Thankfully, you have other options for financing! Our business is in home loans, so you might already guess, that’s the option we recommend, but you don’t have to take our word for it.
Read about all your home improvement financing options –from traditional home improvement loans to peer-to-peer loans to cash out refinancing –and decide which is best for you!
Traditional Home Improvement Loans
These loans are financed by banks, credit unions, and a few online lenders. You’ll get a lump sum to pay for all the labor and materials for your home improvements, such as replacing your HVAC system or putting in a new pool.
Though the name implies that it’s a home loan, it’s not –at least not in the typical sense of the term. It doesn’t consider your home equity nor does it require your home as collateral.
A home improvement loan is unsecured so you can expect a higher rate than you would with a secured loan.
Personal Line of Credit
This loan is also an unsecured loan and is collateral-free. You can use the lump sum however you wish. You can upgrade your home and set some money aside for a vacation too. Or maybe pay down some debt. They are funded reasonably fast and don’t require any equity in your home either.
However, a word of caution: the repayment period is usually shorter. This means that your monthly payment will likely be high. If you cannot afford to make high monthly payments, a personal line of credit may not be for you.
These loans are funded by a group of investors rather than a bank or the government (we’ll talk about government loans below). They go by different names, and you may have even received a flyer in the mail from these non-traditional lenders.
On the upside, these loans are also funded quickly, and you can use the money however you want. The downside, however, is that these loans have some of the highest interest rates out there.
Home Equity Loans
Home equity loans and home equity lines of credit (HELOCs) have longer repayment periods with lower interest rates than the above-mentioned loans. That means your monthly payments will be small and more of the payment will go toward the principle.
Another big bonus is that the interest is tax deductible!
The biggest risk to this loan comes with defaulting. If you’re unable to repay the loan, you put your home at risk for foreclosure.
A home equity loan lets you borrow a lump sum, while a HELOC acts more like a line of credit.
With a HELOC, you have a “draw period” during which you can withdraw money. During this time, you only have to repay interest so your initial monthly payments will be quite low. When that draw period ends, your payments will then also include the principle. A HELOC typically has a variable interest rate, so your monthly payment could still be low even after the draw period ends, but it may also increase significantly.
If you prefer a fixed rate, then you’ll want to look at interest rates of a home equity loan or ask about our fixed-rate HELOCs.
A cash-out refinance replaces your current mortgage with a new one, but this time you’ll borrow extra money to finance your home improvements. Borrowing more money means it will take longer to pay off your home, however, your new home loan may have a lower rate than your current one.
This option often requires you to have about 20% equity as well as meeting all the typical requirement of a home loan such as employment and good credit score.
FHA Title I Property Improvement Loans
If your equity isn’t high enough for a cash-out refi, consider an FHA Title I loan. This government-funded loan is for specific home improvements such as energy conservation. They cannot be used for “luxury improvements” such as swimming pools or outdoor patios. This loan caps at $25,000 with a 20-year repayment period. These loans are not widely available, so you’ll want to contact us to see if you qualify.
Want to know precisely how low your payment can be to fund your home improvement? Apply today! Use our digital home loan application and upload your docs securely in between shopping for floor tile and a new kitchen countertop!
RSVP TO ALEX DEACON’S FREE JUNE REAL ESTATE INVESTING WORKSHOP!
Where to spend your construction dollars, staying on budget and on time
Saturday, Jun 9, 2018, 10:00 AM
Hampton Inn Bridgeville 150 Old Pond Rd Bridgeville, pa
18 Members Attending
I get asked at every workshop to do another bus tour. The hurdle of that is finding the time. Plus we can only handle about 20 people per tour to do it right and I end up turning down a dozen or more. I thought that this month we will tour a bunch of my projects and use technology and do it in a nice climate controlled facility. We will tour each r…