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Posted by Debra & John Blanchet on 2/14/2018

Credit is tied to most big financial decisions you will make in your life. From things as little as opening up a store card at the mall to buying your first home, your credit score is going to play a factor. When it comes to mortgages, lenders take your credit score, particularly your FICO score, into consideration in determining the interest rate that you will likely be stuck with for years. How is your credit score determined and what can you do to use it to get a better rate on your mortgage? We'll cover all of that and more in this article.

Deciphering credit scores

Most major lenders assign your credit score based on the information provided by three national credit bureaus: Equifax, Experian, and TransUnion. These companies report your credit history to FICO, who give you a score from 300 to 850 (850 being the best your score can get). When applying for a mortgage (or attempting to be pre-approved for a home loan), the lender you choose will weight several aspects to determine if they will lend money to you and under what terms they will lend you the money. Among these are your employment status, current salary, your savings and assets, and your credit score. Lenders use this data to attempt to determine how likely you are to pay off your debt. To be considered a "safe" person to lend money to it will require a combination of things, including good credit. What is good credit? Credit scores are based on five components:
  • 35%: your payment history
  • 30%: your debt amount
  • 15%: length of your credit history
  • 10%: types of credit you have used
  • 10%: recent credit inquiries (such as taking out new loans or opening new credit cards)
As you can see, paying your bills and loans on time each month is the key factor in determining your credit score. Also important, however, is keeping your total amount of debt low. Most aspects of your credit score are in your control. Only 10% of your score is determined by the length of your credit history (i.e., when you opened your first card or took out your first loan). To build your credit score, you'll need to focus on lowering your balances, making on-time payments, and giving yourself time to diversify your credit.

What does this mean for taking out mortgages?

A higher credit score will get you a lower interest rate. By the time you pay off your mortgage, just a hundred points on your credit score could save you thousands on your mortgage, and that's not including the money you might save by getting lower interest rates on other loans as well. If you would like to buy a home within the next few years, take this time to focus on building your credit score:
  • If you have high balances, do your best to lower them
  • If you have a tendency to miss payments, set recurring reminders in your phone to make sure you pay on time
  • If you don't have diverse credit, it could be a good time to take out a loan or open your first credit card
When it comes time to apply for a mortgage, you'll thank yourself for focusing more on your credit score.

Tags: Mortgage   credit score   loan   credit   home loan  
Categories: mortgage   credit score   loan   credit   home loan  

Posted by Debra & John Blanchet on 11/8/2017

Many Americans who purchased their home when they had lower credit, a shorter employment history, and less money stand to gain from refinancing their mortgages. However, most miss out on this opportunity or don’t realize it in time to save potentially thousands in interest payments.

According to recent data, 5.2 million Americans could save, on average, $215 per month if they refinanced their loan. But many homeowners are hesitant to refinance.

Whether it’s because of the inconvenience, the cost of refinancing, the worries about something going wrong, or uncertainty about whether they’ll actually save money if they go through the process, millions of homeowners are missing out.

So, in this article, we’re going to talk about some reasons it may be a good idea for you to refinance. If you’re one of the millions of Americans with a mortgage who are thinking about refinancing, this post is for you.

Riding the wave of the economy

Interest rates on home loans are historically low right now. As a result, homeowners can save by refinancing simply due to changing tides of the real estate market. Although mortgage rates have increased slightly over the past two years, they’re still on the low end, so this could be your last chance to save.

To consolidate your debt

Credit cards, auto loans, and other forms of debt can add up quickly. If you have a high-interest rate on your other debts, refinancing could be a good way to consolidate and save.

This can be achieved through a home equity loan or by refinancing with a cash-out option. This means you refinance your mortgage for more than you currently owe and take the remainder in cash to pay off your other debts with high-interest payments.

Typically, you need to have at least 20% equity (or have paid off 20% of your mortgage) to be eligible for this option.

Small percentages count for more now

It was once said that refinancing only made sense if you would receive a lower interest rate of at least 1-2%. However, with the prices of homes increasing over the years, sometimes even a small change, such as .75% is enough to save you substantial money on your repayment.

You’re able to repay early

One of the best ways to save on a home loan is by refinancing to a shorter term. Going from a 30-year loan to a 15-year loan can save you thousands. There are several calculators available for free online that will enable you to estimate how much you could save by refinancing to a 15-year mortgage.

You got a raise

One of the best times to refinance is when you can be certain that you can afford to pay off your loan sooner. As people progress in their career, it isn’t uncommon for them to refinance their loan so that they can spend more each month but save in the long run.

Since you have a higher income, and likely higher credit, you can also refinance a variable rate loan to lock in a lower fixed rate.

Posted by Debra & John Blanchet on 10/25/2017

There is one type of mortgage that makes it easy to know what to expect not only once a month but over the course of your entire home loan. It's the fixed mortgage or a home loan with a fixed interest rate. You generally need good credit to secure a fixed mortgage.

Even in hard times, you could say on track with your mortgage

Another thing that you need to secure a fixed mortgage is enough money to cover a larger monthly payment than you'd likely start out paying if you sign an adjustable rate mortgage. Should interest rates drop, you'll have to refinance your mortgage to reduce your monthly payments.

Refinancing your mortgage is one way to stay on track with your mortgage. Just know that if you take this route, you'll have to pay closing costs again. You also might have to pay another mortgage application fee. Yet, if your refinancing application is approved, you'll have less to pay each month.

Fortunately, refinancing your mortgage isn't the only action that you can take to stay on track with your mortgage. Here are other ways that you can keep your mortgage on track:

  • Start out with a low adjustable rate mortgage then switch to a fixed mortgage before your interest rates spike. (This is a risky move, but if you time it right, it could pay off.)
  • Use your bonus check to pay down the principal on your mortgage
  • Deposit at least half of your tax refund into a savings account that serves as a backup to access should an unexpected event occur and you need additional funds to pay your mortgage
  • Pay off high interest credit cards to have extra money to put toward your mortgage principal
  • Perform required maintenance on your house,including your house appliances, to reduce the number of times that you have to pay for repairs or pay for new appliances

Discipline is a must when it comes to keeping mortgages on track

Safeguards against late mortgage payments should be in place before you take the keys to your new house. Don't wait until the last minute to develop safeguards. It's these safeguards that can keep you from falling behind in your mortgage payments should one of the world's unexpected changes occur.

Have enough money saved to cover four to six mortgage payments. Avoid dipping into these savings to pay for entertainment, clothes or cover the cost of a vacation. Keeping mortgages on track requires you to be disciplined.

One of the best ways to get disciplined is to create a budget and stick to it. Another way to get disciplined so that it gets easier for you to keep your mortgage on track is to start paying bills while you are still living with your parents.

This single decision will teach you to prioritize purchases. It will also get you accustomed to prioritizing purchases until you see that you can invest a portion of your income in savings and retirement funds.

Categories: mortgage