credit

How to Get the Best Rates in this Market

/ Jennifer Larson

Rates are down and they continue to trend that way as inflation cools and home sales are slow in many areas. This is the best buyer’s market we’ve seen in a few years and it’s also a treasure trove of savings if you have the right strategy.

Even with rates in the low 6’s, buyers in slow markets have an advantage of getting motivated sellers to work with them. Instead of asking for $15k-20k off the sales price, a buyer will actually save HUNDREDS more per month on their monthly mortgage payment by, instead, asking for that amount in seller credits to buy down their rate in a 2-1 buydown. The buyers will then get a rate in the LOW 4’s for the first year and a 1% reduction the next year because of it. Buy down points are expensive and can easily cost thousands so if a buyer instead asks for the reduction as a credit versus a sales price drop, they’ll actually save significantly more. Just offering $20k below ask doesn’t save you much, believe it or not, on your loan. It’s all in the interest rate how much you pay and how you’re approved of what you can afford. Don’t worry so much about the price but how much you will pay per month. Here are some examples how it makes a big difference:

We’re going to compare this listing in Yucca Valley, CA from C & S Real Estate with a price reduction and a buy down scenario to show you the real way to save money on buying your next house.

Listing Agent Sean Dittmer and currently for sale as of this posting

If the buyer offers $20k below ask, their mortgage would be looking like this:

This is based upon an accepted offer $20k below asking and about 3.5% down or $13,000

If they instead asked for that in seller credits to buy down their rate, their payment would be approximately this: See the difference?

This is asking price but 2-1 buydown rate. Discount points are where it’s at! The down payment only goes up to $14k as well.

This is the same buyer with a 690 credit score and $60,000 annual income.

See how offering well below ask doesn’t lower your payment as much as a buydown? You can also buy permanent discount points for that amount from the seller and buy down to that permanent rate of 5% that’s shown in the example. These are real calculations from UWM that we use to price a loan. Instead of offering $20,000 below asking price, get that amount to buydown your rate and pay lower than market. If your credit is better than this buyer, you can possibly end up paying a rate in the 4’s!

It’s important to note that the rate you’re approved for will go up a little on your Closing Disclosure (the CD) because it includes the APR which is your rate plus all your points and fees financed into the loan. The APR is your total cost of the loan percentage. Mortgage insurance (PMI or MIP) are included in that Annual Percentage Rate so that’s the final cost you will pay as a rate on your loan. The APR is that mortgage 💸 insurance, any fees and points, + interest rate for your total loan percentage (APR).

To get a total APR under 5% you need better credit. If you’re working on your credit still, make sure you reach out and work with me. It’s free and easy. If you’re ready to buy, THIS is how you get the best rate. Get those buy down points so you save money and the seller will net the same price. Win Win!

Let’s get started!

Which Debts Are Most Important to Pay Down?

/ Jennifer Larson

For a home loan, it’s not medical debt. In fact, the Biden Administration is focusing on passing legislation through Congress that would eliminate it from being considered in your credit score for many types of financing and home loans. It also depends on what your credit report says (go to http://www.annualcreditreport.com) and a detailed report will show this if lenders can see it or not but it’s not typically a factor to worry about for approval. The biggest hindrance might be your student loans.

Make sure you’re getting as much loan forgiveness as you can and negotiating with your creditors to reduce fees and interest rates. This will help lower your payments and DTI which helps you get approved for more. If you don’t have student loans, your next biggest hurdle is probably your car.

Cars of all brands are absolutely ridiculous nowadays. We have clients paying almost a thousand dollars for Fords and Toyotas and I’m not talking their top of the line models with extra features. It’s insane right now so imagine for luxury cars how that can affect your approval! Add up your car payments and that amount will be how much less you’re approved for in underwriting because that’s all DTI and those numbers are subtracted from your total approval. We start with your front end DTI which is just how much the house will cost you per month to buy. Your back end DTI then starts reducing that amount because we have to factor in your cars, your credit cards, payment plans you’re on, etc. If it’s on http://www.annualcreditreport.com and you pay monthly on it, it’s probably going to reduce your approval amount. Car payments by far are the biggest killers of dreams and buying a house. Don’t buy brand new, and get them two years old at least, to save thousands on dealer mark ups and depreciation.

Next is credit cards 💳. People use these like free money and they’re NOT! Before you apply for a mortgage, make sure you are below 15% utilization and don’t be surprised you have to pay below 10% to get approved. Clients need to understand their current balances due are a major factor because it’s debt we have to account for. Pay it down tremendously before applying. It doesn’t matter if you always pay in full, pay before you apply!!

These are the top debts to pay down (or off if you can) so that your chance of a new house isn’t ruined by all these payments. You can have debt and buy a house but you can’t have a lot of debt. Lenders want to see fiscally responsible borrowers and big car payments and credit card balances are not a good candidate for rates around 7%. Sorry. 🤷‍♀️

How to Time Your Credit Score

/ Jennifer Larson
It’s all in the timing.

Every month your creditors report to the three bureaus and when they report is the key 🔑 to your best score. How do you time your score to when it’s reporting?

The key to your score is the statement date and playing to the metrics your score is evaluated by as it peaks at the same time. Your credit card statements are the best way to manipulate your score in your favor with this. Your payment due date is not the date you should be paying by. You should be paying by the statement date.

My statement date on my credit cards is usually the 19th or 20th so I make sure all of my payments CLEAR by that date. Every 15th I pay all of my statements off or to under 20% utilization. I have low limit cards, on purpose, so my two cards have $300 and $1000 limits. Total 🟰 $1,300 credit limit available. Multiply your total credit limit across all cards by .2 (20% utilization) to determine what to pay down to. Your total STATEMENT balance should never exceed that 20% amount on your statement date. If they do, before that date you need to pay down the balances and make sure all payments have cleared by the date or it will report your higher balance—which means a lower score. Pending payments that have not cleared or posted yet to your statement will not show and boost your credit.

By your statement date, your total balance should be less than 20% of your total available credit, including your cleared payments otherwise pending payments won’t count to the bureaus yet. Since my statement date is the 19th, I make all of my payments, if I haven’t already, paid down on that date. I constantly pay my cards every week but on the 15th I double check all of my current charges and make sure none of them will be cleared before the statement date. I also make sure all of my payments DO clear before the 19th statement date when I submit them. Pending charges are going to affect your utilization and will show on your report even if they haven’t posted, unlike payments, so I make NO CHARGES between the 15th and 20th until I see my new credit report and the lower balances have already reported. Then I can make another purchase that I need, including groceries and necessities, on that date. If I need to make those purchases during the limbo period, I pay off my cards entirely before the 15th so the charges above utilization clear by then (usually on the 12th) so I can then make the essential purchases without worry my cards will report high utilization (over 20%) by the 19th. When you get your statement, your total owed should be under 20% for the highest credit score. Your statement is your monthly bill so whatever that number is, that is the number that shows to the credit bureaus; even if you have pending payments to cover those charges.

Not only does this boost your credit score faster and easier, you’re saving a lot of money on interest accrued, lowering your bills and DTI, and you’re keeping your spending in check. Credit cards are not free for alls and they should be treated like debit cards. That’s what the credit bureaus and lenders are looking for–your level of responsibility with debt and spending so show them you’re a master of finance and self-control!