Two Simple Ways to Boost Your Credit Score Before Applying for a Mortgage

About a month ago, I cautioned readers to avoid swiping the credit card before applying for a mortgage.

In short, the more you charge, the higher your outstanding balances. And the higher your balances, the lower your available credit and credit score will be.

That’s pretty straightforward stuff, but it may not apply to everyone because some folks may want a higher credit score despite making very few credit purchases.

However, there’s yet another way to give your credit scores a boost without simply doing nothing.

Increase Your Credit Limits

I’m talking about increasing credit card limits, something that is very easy (and fast) to accomplish thanks to the many credit card management tools now at our fingertips.

If you visit just about any credit card issuer’s website, you should be able to find an area to increase your credit limit online.

Put simply, you enter the desired amount you’d like (e.g. $10,000 if your current limit is $5,000) or you simply ask for an increase and get what you get and don’t get upset.

When it comes to credit card issuer Discover, you simply enter your gross annual income, employer name, and monthly housing/rent payment. Then they present you with your new credit line. It can take as little as a few seconds to get your new line of credit.

With other issuers, such as American Express, you are asked to enter your desired credit limit and then hope they extend it to you. Apparently you can get 3x your starting limit with little trouble.

So if you started with $5,000, you could get it increased to $15,000 simply by visiting the American Express website and filling out an online form.

The underlying goal of such moves is to lower your credit utilization, which is the percentage of credit you’re actively using at any given time.

A lower utilization, similar to a lower debt-to-income ratio, is viewed favorably.

So imagine you have that American Express credit card with a $5,000 limit.

If you currently have a $2,500 balance, even if it’ll be paid off on time and not revolved, you’re essentially using 50% of your available credit. This isn’t a good thing when it comes to credit.

You may actually want to keep your utilization below 25%, in this case, no more than $1,250, again, even if you pay it off in full by the due date.

But what if you naturally charge a lot on your credit cards each month, despite paying all of them off every month? What can you do to keep utilization low?

Well, if your credit limit happened to be $10,000 instead of $5,000, that $2,500 balance would only represent 25% utilization.

In other words, all you have to do is ask for higher credit limits, instead of spending less. Of course, spending less will sweeten the deal and ideally push your credit score even higher.

Tip: It’s easier to get credit limit increases approved if your balances are low because you’re viewed as a lower risk customer.

Pay Off Your Existing Balances

In conjunction with this tip, you can pay down any balances you may have, assuming you don’t pay your credit cards in full each month.

If implemented together, you can get higher limits and reduce balances, which will be a one-two punch in the credit utilization department.

So using our same example, if the person with the $2,500 balance lets it float from month to month and only has a $5,000 credit limit, imagine if they got a higher limit and started paying it down.

They could push their utilization down from 50% to say 15% if they got the limit increased to $10,000 and paid $1,000 off the balance.

These actions should result in a higher credit score, which generally means a better mortgage rate if you apply for a home loan.

Additionally, smaller credit card balances mean you’ll have more of your income available to use toward a mortgage payment. So you may actually be able to qualify for a larger mortgage and/or buy more house.

The only caveat here is that a credit limit increase request could result in a hard inquiry on your credit report, which could ding your credit slightly. It’s temporary, but could offset some of the expected gains of a higher limit.

So either request the higher limits several months in advance of applying for a mortgage, or ask the credit card issuer if it will result in a hard or soft pull before making the request. If it’s the latter, it won’t harm your credit score.

In any case, you’ll want to approach mortgage lenders with the highest credit score possible to ensure you have the best chance of approval and obtain the lowest interest rate.

source: thetruthaboutmortgage.com

Qualifying for a Mortgage When You’re Self-Employed

When John Kennedy observed that “life is unfair,” at a press conference in 1962 he wasn’t referring to the challenges self-employed workers would face getting a mortgage fifty years later—but he would have been right.

If you are one of the 14.6 million people in the US[1] who make a living working for yourself—about 10 percent of the total workforce—you don’t fit neatly into the profile of borrowers whose income can be easily documented for a mortgage application.

Tax returns don’t tell the whole story

It’s not impossible to get a mortgage if you are your own boss, but you’ve got to jump through some extra hoops to qualify.  That’s because self-employed borrowers typically have to provide two years’ worth of tax returns, which lenders will want to obtain directly from the IRS.

Yet tax returns often don’t accurately reflect their take-home pay.  Self-employed people typically take advantage of a slew of tax deductions related to their businesses, from retirement plans to home offices.  These reduce their taxable income, but they also reduce their adjusted gross income, which is what lenders look at for proof of income.

In some cases, mortgage lenders will allow certain deductions to be added back to the income such as depletion, depreciation or a large, nonrecurring item.

Plan ahead if you can

One solution is to plan ahead and write off fewer expenses for the two years leading up to applying for a mortgage, a strategy that could either cost you significantly at tax time or require you to refile you taxes after your mortgage is approved.

Another suggestion is to separate your personal funds from your business by using a credit card devoted to your business expenses, then convince a lender that the debt isn’t against you because it belongs to the business.  Finding the right lender could still be difficult, and you could still miss some of the most popular deductions, such as home businesses and cars used for business.

Timing is also important.  Self-employed workers typically have highly volatile businesses.  By using income averaging over 24 months, borrowers can avoid declines in income from one year to the next.

Reduce debt to improve your chances

The reason lenders want to see your income is because they need it to determine whether you have enough income to make you monthly debt obligations, a calculation expressed as your debt to income ratio. The median DTI for recurring debt on closed conventional purchase loans today is about 35 percent for recurring debt payments.[2]

By reducing or eliminating your recurrent debt payments, such as your car or student loans, you can reduce your DTI ratio, which will help you qualify for a larger mortgage.

source: totalmortgage.com

Four Things You Need to Do Before Listing Your House

If you’re eager to sell your home and buy a new one, you might rush to put your house on the market. However, you should take a step back and really assess the situation. If there’s a lot of competition in your local market, your property can sit for several months with little interest. This can be frustrating and discouraging. For that matter, don’t rush. Here are four things you need to do before listing your house for sale.

1. How much do I owe?

 

Emotions may persuade you to sell your house quickly. Maybe you’re expanding your family and need a bigger home. Regardless of the situation, you need to crunch the numbers and determine whether now’s the right time to sell.

Take into consideration how much you owe the mortgage lender. Visit your lender’s website or call the bank to get a payoff amount. Once you have this information, determine how much you’ll need to sell the property for. A real estate agent typically requires a 6% commission, and if proceeds from the sale will go toward the down payment on the next property, decide how much you’ll need to profit from the sale.

For example, if you owe the bank $140,000, and realtors charge six percent commission, and you need a $7,000 down payment to purchase a new property, given these numbers you’ll need to sell for at least $155,400. The next question is: can you sale for this amount?

You may think you can get a certain price for your home, but the local market ultimately determines the value of the house. A realtor can provide comparable sales and statistics to help you understand what similar homes have sold for in recent months, or you can hire an appraiser to assess your home’s value.

2. Realtor vs. For Sale By Owner

 

Most home sellers prefer using a real estate agent to handle the transaction. The realtor is responsible for listing the house, marketing the property, arranging showings, plus they can help with paperwork and answer questions. However, after completing market research and getting an appraisal, you may decide that you can’t afford a six percent commission, and selling the home yourself might be the only alternative. You don’t need a realtor to sell your house, just make sure you know what you’re getting into before handling the sale yourself. You’re responsible for the marketing and the meetings with potential buyers.

3. Get pre-approved

 

Before listing your house for sale, get pre-approved for a new mortgage. The truth of the matter is, there’s no point in selling your house if you don’t qualify to buy a new one. A pre-approval is a simple process that takes less than a week. Basically, you complete a mortgage application, submit your income information and the lender pulls your credit. Based on this information, the bank determines if you qualify for a mortgage, and how much you’re eligible for receive.

4. Tour other homes for sale

 

Because many homebuyers seek move-in ready properties that require minimum improvements, you’ll need to compare your home with other houses on the market. You don’t have to invest a ton of money in total renovations, just know that the more modern the space, the easier it’ll be to sell. Visit similar homes for sale in your area to assess the competition. If your sale prices are comparable, but these homes are staged, updated and in better condition than your property, your home might not sell as quickly.

To make your property more appealing to buyers, de-personalize the space so that potential buyers can envision their family living in the home. Choose neutral colors for the wall and replace worn items, such as the carpet, appliances, fixtures, tile floors and windows. Most buyers aren’t looking for perfection, but at the same time, many aren’t going to purchase a home that requires thousands of dollars in improvements — unless the price is low enough.

Final Word

 

Home selling is a competitive game, especially when there are many homes on the market. However, if you do preliminary work and research the market, and if you know what buyers want, you can sell faster and move into a new place sooner.

source:  totalmortgage.com

Mortgage Applications Edge Up in Latest Week

NEW YORK -- Applications for U.S. home mortgages edged higher in the latest week, rebounding from a 13-year low set at the end of last year, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 2.6 percent to 345.1 in the week ended Jan. 3.

In the week ended Dec. 27, the index had slipped to 336.4, according to the release, the lowest mark since December 2000.

The release covered two weeks of data because of the holidays. Both weeks included holiday adjustments.

The U.S. Federal Reserve said last month it would start pulling back on its $85 billion a month bond-buying program as the economy grows strong enough to stand on its own.





That announcement, as well as months of speculation before the Fed actually moved, helped drive yields on benchmark 10-year U.S. Treasury notes about 125 basis points higher last year.

That jump in rates on the 10-year note, which is used as a standard in setting mortgage and other lending rates, has slowed mortgage applications recently.

The rate on fixed 30-year mortgages averaged 4.72 percent last week, the same as the prior week.

The MBA's seasonally adjusted index of refinancing applications rose 4.6 percent. That index hit a five-year low in the week ended Dec. 27, as well.

The gauge of loan requests for home purchases, a leading indicator of home sales, fell 0.5 percent.

The survey covers more than 75 percent of U.S. retail residential mortgage applications, according to MBA.

source: dailyfinance.com