How a Short Sale Can Impact Your Credit Score

On March 9, 2014   /   Home Finance  
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short sale

How a Short Sale Can Impact Your Credit Score

While the United States housing market improved in 2013, at the end of the year 19% of homeowners with a mortgage owed more on their mortgage than the value of their home.

For homeowners with no plans to move and who can comfortably afford their mortgage payments, being underwater certainly can be frustrating. However, those homeowners have the option of waiting until the combination of rising home values and their continued loan repayment brings them back “above water.”

Homeowners who are struggling financially and can’t make their payments or who must relocate for employment face a bigger issue if they’re underwater on their home loan because they cannot sell their home for a profit and move. Some of these homeowners can qualify for a government refinance program or a loan modification from their lender, but others face a choice between letting the mortgage lender take their home in a foreclosure and negotiating a short sale.

A short sale simply refers to the situation when a borrower asks the lender to accept a loan repayment for less than the full amount. The amount offered depends on the sales price negotiated between the lender, the seller and a buyer. You’ll have to provide proof of a hardship such as a change in your finances that makes the payment unaffordable or mandatory job relocation.

If you’re able to get your lender to agree to a short sale, you may or may not be responsible in the future for the gap between the balance you owe and the amount actually repaid. This depends on the state where you live and your lender’s decision about seeking recourse.

Short Sales and Your Credit

Many homeowners prefer a short sale to a foreclosure because they believe there’s less of a stigma attached to a short sale and that it won’t necessarily damage their credit as much. However, both a foreclosure and a short sale can lower your credit score and will stay on your credit report for seven years. Over time, though, you can improve your credit score through credit rebuilding techniques such as paying all your bills on time, reducing your debt, and, if necessary getting a secured credit card and making regular payments.

The impact of a short sale on your credit depends on several factors, including the way your lender reports the short sale to the credit bureaus. Most lenders will use the term “settled” for a short sale, which indicates that less than the full debt was repaid. If you can negotiate with your lender to use the word “paid” your credit won’t be as badly damaged, but lenders rarely agree to that.

Your credit score could drop by anywhere from 85 to 200 points depending on whether you have been paying your mortgage on time and your previous credit score. If, for example, you had good credit of 700 or above, your score might drop even more than someone who already had a low credit score of 620 or so because of a short sale is an indication of potential future defaults on other credit, especially if the borrower with low score had been making on-time mortgage payments. If you had months of non-payment, partial payments or late payments on your mortgage, your credit score will also be lower because of the combination of the short sale and a bad mortgage history.

In spite of the impact on your credit, a short sale may be the best option if you can’t stay in your home because you can move on from your current situation and begin to rebuild your credit for the future.

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Pay Off Credit Card Debt before Buying a Home: Maybe Not

On March 2, 2014   /   Real Estate News  
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credit cards

Pay Off Credit Card Debt before Buying a Home: Maybe Not

By: Michele Lerner

While getting your financial house in order before you try to purchase a home is an excellent plan, paying off all your credit card debt may not be the best move.

Ironically, some of the steps you take that are great financially (such as reducing debt and canceling your credit cards) are not always helpful when you are applying for a home loan. Reducing your debt will impact your credit score, your debt-to-income ratio and the cash you have in the bank, so consider all three aspects carefully before you make a final decision about your credit card balance.

Cash Reserves and Credit Card Debt

If you are thinking of buying a home, you have likely implemented a robust savings plan to build a fund for your down payment and closing costs. Think hard before you dip into that fund to pay off your debt.

The median price of a home in the United States in 2014 is around $200,000, so you will need at least $7,000 for a down payment for an FHA loan that requires 3.5% down; or $10,000 for a 5% down payment, the minimum required for most conventional loans. In addition, you will need 3% to 5% for closing costs, which comes to another $6,000 to $10,000. So far, you will need between $13,000 and $20,000 in cash to buy a home.

You will also need money for moving expenses and for cash reserves in case of an emergency. Not all lenders require cash reserves, but to be safe you should plan on having at least two months of mortgage payments on hand.

Once you have estimated all these costs and determined that you can cover them and still have cash available, paying off your credit card debt would be smart financially.

Debt-to-Income Ratio

In order to qualify for a conventional mortgage, your monthly minimum payments on all debt must be a maximum of 43% of your monthly gross income. Some lenders require lower debt-to-income ratios, particularly for borrowers with a low credit score or few cash reserves. If your credit card debt is too high, you may not be able to qualify for a mortgage. FHA loans have looser guidelines, so some lenders may allow a higher debt-to-income ratio under special circumstances, but for your own comfort level with your budget it’s best to have a lower debt-to-income ratio.

Credit Score Issues

Lenders rely heavily on consumer credit scores, not only for a loan approval but also to determine the interest rate you will pay for a conventional loan. If your credit score is under 700 or 680, you may want to pay off some or all of your debt to improve your score. If your score is 640 or lower, you may qualify for an FHA loan depending on the rest of your credit profile.

If you decide to reduce your debt, be careful not to consolidate all your debt on one credit card. Doing that can hurt your credit score more than having a low balance on several cards. Even more important, don’t close any credit card accounts. This will reduce your overall credit availability and shorten your credit history, both of which will lower your score.

One of the best ways to make the decision about your individual financial situation is to consult with a mortgage lender who can advise you about the best way to qualify for a loan that’s affordable and fits your money management plans.

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8 Costly Home Seller Mistakes

On February 23, 2014   /   Real Estate News  
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home for sale

8 Costly Home Seller Mistakes

By: Anne Miller at Realtor.com

Homeowners who want to sell their home know they need to get the place spruced up for marketing, but a tougher challenge for some sellers is to get mentally prepared for putting their residence on the market.

After all, if you’ve been happily living in your home for years, it can be emotionally hard to detach yourself from your memories and look at the place as a commodity you’re selling.

For a smoother sales transaction that garners the most possible profit from your sale, avoid these common, yet costly, seller mistakes:

1. Skipping a home inspection. Depending on the age of your home, scheduling a pre-listing home inspection could save you a lot of time and aggravation. You can address issues on your own time and budget before negotiating with a buyer to fix problems.

2. Skimping on your sales prep. While you may be tempted to ?test the waters? and put your home on the market without painting it or making minor repairs, your home is likely to languish on the market and get a reputation for having a major problem. A thorough, professional-level cleaning should be your bare minimum seller prep. Your eventual sales price is likely to be lower if you don’t sell within the first few weeks after you list your home.

3. Choosing the wrong REALTOR®. Instead of picking a REALTOR® who’s a friend of a friend, a relative or perhaps someone who’s great at working with buyers, take the time to pick a REALTOR® with an excellent reputation for listing homes. Your payoff will be much larger if you list your home with a REALTOR® with local market knowledge and sales expertise.

4. Neglecting to ramp up your curb appeal. If you polish and primp inside your home but neglect to pull weeds or paint your front door, you run the risk of potential buyers leaving without ever entering your home.

5. Withholding information from buyers. If you hope that the buyers or their inspector won’t find out about the leak under your bathroom sink or the fact that your basement gets flooded every winter, you run the risk of a nasty negotiating period, or  worse, a lawsuit after the settlement.

6. Overpricing your home. If you’ve hired the right REALTOR®, someone who can give you a strong market analysis and help you determine a reasonable price for your home, then you can avoid overpricing your home. If you don’t listen to your REALTOR® and base your listing price on an inflated view of your home’s value, you’re likely to end up selling after multiple price drops for less than you would have if you priced it right the first time.

7. Being unprepared for your next step. Whether you should buy your next home or sell your current home first is only one part of the preparation you need to make to move. You need a back-up plan in case your transaction on either end takes longer or shorter than you think, and you need to understand your mortgage payoff and the closing costs you must pay.

8. Letting your pets and kids spoil a sale. Part of your emotional detachment from your home is recognizing that while you love Fluffy and your darling twins, buyers want to visualize themselves and their own family in your home. Bribe your kids if you have to, but make sure the house is neat and as neutral-looking and smelling as possible. Take the kids and your pets out (or lock up your pets) when prospective buyers are visiting ? you never know if someone who is terrified of dogs or cats will be turned off from making an offer because of your adorable pet.

Selling a home can be challenging, but with the help of a reliable REALTOR® you can avoid making mistakes and reap the rewards of your sale.

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Make a Great First Impression

On February 16, 2014   /   Lake Martin Real Estate, Real Estate News  
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20 lake vista lane on lake martin alabama

INEXPENSIVE WAYS TO MAKE YOUR HOME SHINE

By Michele Dawson at Realtor.com
Once your home is listed and the for-sale sign is firmly implanted in your front lawn, all is ready for would-be buyers to tour your home. Or is it?
As anyone in the real estate industry will tell you, it’s important to make your home look its best when it comes time to show it. That first impression is everything. Even if you’re in a market where homes are selling quickly and for full asking price, it’s still key to spruce up your home and prove that it’s worth every penny you’re asking. And it doesn’t have to cost you a fortune.
In fact, a great first impression, coupled with the decreasing amount of time the typical home is on the market these days, is sometimes all it takes to see a speedy offer come your way.
So, if you’re in a market with few available homes for sale, you’re probably less likely to spend a lot of money on major aesthetic improvements. But there are a lot of simple, fairly inexpensive things you can do to make a good first impression and attract offers as quickly as possible.
Some things you can do to ensure your home’s exterior lands favorable first impressions include:
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Packing for a Move? Don’t Put These Items on the Truck

On February 10, 2014   /   Moving  
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packing for a move

By Erik Gunther: Realtor.com

Before you pack everything and open the door to your mover, keep in mind that some items may be hazardous — or even illegal — to put on the truck.

Generally, don’t pack anything that’s flammable, combustible or explosive.

Sounds easy, right?

Well, that simple rule of thumb covers many common items that you might not realize are a risk. Make separate arrangements if you need to move any of the following items that make movers balk:

  • Aerosols
  • Ammunition and guns
  • Charcoal
  • Cleansers containing bleach or ammonia
  • Fertilizer
  • Lighter fluid
  • Nail polish remover
  • Oil or gas of any sort
  • Paint cans
  • Pesticides and poisons

Another tip: Don’t try to sneak any of the above items into your moving boxes. You could be breaking the law, according to the U.S. Department of Transportation:

“Federal law forbids you to ship hazardous materials in your household goods boxes or luggage without informing your mover. A violation can result in five years’ imprisonment and penalties of $250,000 or more.”

Besides hazardous goods, movers won’t touch anything needing special attention, such as refrigerated or frozen food, plants or pets. You’ll have to find other ways to get those items to your destination.

There’s one other category of stuff you shouldn’t just hand over to your movers — high-value items. Your movers will take them, but think twice before packing them away. If you have jewelry, priceless collectibles, precious metals, or heirlooms that aren’t easily replaced, you should take them yourself.

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