Linda D. Dempsey's Blog
It’s hard to overstate the importance of credit scores when it comes to buying a home. Along with your down payment, your credit score is a deciding factor of getting approved and securing a low interest rate.
Credit can be complicated. And, if you want to buy a home in the near future, it can seem daunting to try and increase your score while saving for a down payment.
However, it is possible to significantly increase your score in the months leading up to applying for a loan.
In today’s post, we’re going to talk about some ways to give your credit score a quick boost so that you can secure the best rate on your mortgage.
Should I focus on increasing my score or save for a down payment?
If you’re planning on buying a home, you might be faced with a difficult decision: to pay off old debt or to save a larger down payment.
As a general rule, it’s better to pay off smaller loans and debt before taking out larger loans. If you have multiple loans that you’re paying off that are around the same balance, focus on whichever one has the highest interest rate.
If you have low-interest loans that you can easily afford to continue paying while you save, then it’s often worth saving more for a down payment.
Remember that if you are able to save up 20% of your mortgage, you’ll be able to avoid paying PMI (private mortgage insurance). This will save you quite a bit over the span of your loan.
Starting with no credit
If you’ve avoided loans and credit cards thus far in your life but want to save for a home, you might run into the issue of not having a credit history.
To confront this issue, it’s often a good idea to open a credit card that has good rewards and use it for your everyday expenses like groceries. Then, set up the card to auto-pay the balance in full each month to avoid paying interest.
This method allows you to save money (you’d have to buy groceries and gas anyway) while building credit.
Correct credit report errors
Each of the main credit bureaus will have a slightly different method for calculating your credit score. Their information can also vary.
Each year, you’re entitled to one free report from each of the main bureaus. Take advantage of these free reports. They’re different from free credit checks that you can get from websites like Credit Karma because they’re much more detailed.
Go through the report line by line and make sure there aren’t any accounts you don’t recognize. It is not uncommon for people to find out that a scammer or even a family member has taken out a line of credit in their name.
Avoid opening several new accounts
Our final tip for boosting your credit score is to avoid opening up multiple accounts in the 6 months leading up to your mortgage application.
Opening multiple accounts is a red flag to lenders. It can show that you might be in a time of financial hardship and can temporarily lower your score.
Major corporations can change nearly everything about their surrounding areas and their effect on residential real estate can be truly substantial. The concentration of wealth in areas like Silicon Valley and Seattle has influenced even the most basic properties, causing otherwise unremarkable homes to be worth over a million dollars based on their location alone. We'll look at the patterns of residential real estate from the past and the predictions of the future.
The Boom & Cool
Much like the stock market, there's a flurry of activity in the real estate market when anticipation is in the air. Just the announcements that Amazon's HQ2 would be in Long Island City caused a major influx in properties both in and around the area. But the long-term effects for real estate aren't quite as extreme.
Once Amazon switched their allegiance to Arlington, the value of the Long Island City cooled back down to its original levels. Even in the D.C. area, the effects have been moderate. After a year, Arlington saw some increases in value for homes near the future campus, but its mid-2030s arrival is causing some degree of hesitation for owners and developers.
The Steady Rise
The areas that see a steady climb are typically those that bring in a stream of businesses. These cities and towns attract diverse populations who contribute their talents and create a personality that others want to be a part of. Los Angeles made headlines for becoming its own haven for tech talent, creating the so-called Silicon Beach that spans through Santa Monica, Hermosa and Venice.
Google, YouTube, Snap, Inc. and Hulu are just a few corporations with offices in Silicon Beach. With San Francisco pricing even successful companies out of the market, the demand for luxury real estate in the LA area has increased due to the influx of well-paid engineers, developers and leaders.
A single industry, such as oil or tech, can quickly raise the average salary to epic proportions. In Gillette, WY, a city dominated by fossil fuels, the average cost of a home increased from $236,978 to $272,100 over the course of just 7 years. So while Arlington may not have seen the immediate jump they were looking for, it may only be a matter of time.
You can see prices being pushed up all over the country due to corporate investment. From Boston to Miami, it starts with the areas directly surrounding the area of the business before being pushed out to the suburbs and beyond.
So what will 2020 bring to the real estate market? While market trends can, and do, change on a whim, some activity seems to be easier to predict. If you’re entering the market this year as a buyer or seller, having a better understanding of these trends will help you make informed decisions, so here’s what you can expect.
1. Home Prices Rise, but Slower
Home prices have been on the rise in the past couple of years. This trend is expected to continue in 2020, but the rise will be a bit slower. Freddie Mac warns of an economic slowdown this year, and expects price growth to be around 2.8, compared to 3.3 in 2019 and 5.0 in 2018. This is good news for sellers, but it’s also good news for those who aren't considering selling this year. Rising home prices means your equity will increase or hold steady.
2. Drop in Mortgage Rates
Next, interest rates are expected to drop for most loan types. In 2020, expect to see averages below four percent for most types of loans. Of course, this particular trend can change suddenly, but if it remains on track it will mean more interested buyers in the market. This can help sellers.
3. Homebuilders Focusing on Starter Homes
Demand for starter homes is on the increase. There are two reasons for this. First, many people who would normally be listing their starter homes are choosing to stay put, because younger homeowners are valuing community more than owning a large home. Second, Baby Boomers are starting to look for smaller “starter” homes as their downsized homes. This creates an additional number of buyers competing for the type of home that appeals to first-time buyers. Because of this demand, many homebuilders are focusing on building in this demographic.
4. Millennials Dominating the Market
Millennials, those born between 1980 and 1998, are going to be the largest generational group in the home buying market. Many of these young adults waited to buy their first home until they were well established in their careers, and are now ready to make the purchase. Others are ready to move out of their starter home and into their forever home. These buyers use the Internet primarily to help them in their home search and are looking for the home’s location and features, rather than a huge home with lots of square footage.
Market trends are never set in stone. Economic factors can change and impact these trends, but based on current projections, these are a good indication of what the 2020 home market will bring.
If you've decided to put your home on the market, one important thing to keep in mind is that perception is everything -- or close to it, anyway!
The impression you make on prospective buyers can either help seal the deal or break it, depending on whether that impression is positive or negative.
The visual aspects of your home often have the strongest impact on what prospects think of your house, but three other senses can also influence buyer decisions.
The sense of smell: Without getting too specific, there are a variety of unpleasant odors that can quickly sour a prospect on the possibility of making an offer on your home. In many cases, there's justification for a sudden loss of interest. A musty smelling basement, crawlspace, or attic, for example, implies problems with water seepage, plumbing leaks, or mold. That musty odor is unpleasant and gives buyers the (accurate) impression that there are air quality issues in the house.
Pet odors can be another major turnoff, especially if the people touring your home have allergies or sensitivity to certain odors. Strong or artificial odors of any kind, including room deodorizers, overuse of commercial cleaning solutions, and scented garbage bags can also be objectionable and suggest that you're trying to cover up odors.
On the other hand, you've probably heard stories about home sellers and agents who create pleasing fragrances by brewing a fresh pot of coffee, baking a loaf of aromatic bread, or preparing a fresh batch of blueberry muffins or chocolate chip cookies shortly before a house tour is scheduled. While it may be impractical to do that every time, it is a strategy worth experimenting with! The simple act of infusing your kitchen with enticing aromas can help make your home more attractive, inviting, and appealing. Fresh flowers are another nice touch that can enhance the ambiance of your home.
The sense of touch: Probably the main thing you would want to avoid in this category would be allowing countertops or floors to feel sticky, gritty, or wet to the touch! Many people will take notice of how clean (or unclean) your house looks, smells, and feels, and they will undoubtedly deduct "points" if countertops, bathroom fixtures, and floors aren't immaculate. Perfection is not necessary, but the appearance of cleanliness is! As mentioned earlier: Perception is everything!
The sense of hearing: Some noises you can fix; others are beyond your control. Squeaky hinges and dripping faucets are a relatively easy fix, while street noises, barking dogs, and loud neighbors are much more difficult -- if not impossible -- to regulate!
The bottom line, of course, is to control what you can, put your best foot forward, and hope for the best when it comes to noises in the neighborhood!
You may have heard that you will need 20 percent of the purchase price of a home to put down in order to buy it. As the prices of homes continue to rise. 20 percent of the purchase price of any home may not seem like a small feat to save up. It’s not impossible to buy a home. You may be able to get around the 20 percent rule in a variety of ways. Keep in mind that putting down as large of a down payment as you can will help you to land the home of your dreams a bit faster.
The 20 percent down rule is sort of a myth. While the more you have saved up, the better your chances of standing out among other buyers are. You can still get a mortgage with less than 20 percent down from most banks. The drawback in not putting down 20 percent on a home is that you will need mortgage insurance (also known as PMI). Mortgage insurance is necessary if you put less than 20 percent down because the lender wants protection in case the home is foreclosed on due to a lack of payments.
All About PMI Payments
If you do put less than 20 percent down on a home, your PMI payments won’t go on forever. Once your loan is paid down a bit, you’ll be free and clear of PMI payments. As a rule, if the loan-to-value-ratio reaches 80 percent, you can ask your lender to cancel the insurance for you. When the loan-to-value ratio reaches 78 percent, the lender will automatically cancel the PMI. This is a welcome decrease in expenses since PMI insurance can add up to be hundreds of dollars per month.
Finding A Way Around 20 Percent Down
Before you even decide to buy a house, you should look at financing options. There are certain programs that are available to you to help. If you know about them ahead of time, you’ll be able to take advantage of them.
Many different government agencies have programs available to help people get a home easier. These programs will provide home loans with a low interest rate and little to no down payment. The downside to these programs is that many of them actually require you to purchase private mortgage insurance as a contingency to get the loan. You’ll need to plan for these extra expenses. There are even grants available to help you with your down payment. Check in your state or local HUD office for details on various programs that can assist you with your down payment on your first home. Through a bit of savings and research, owning your first home can be possible with or without 20 percent down.