Jan McNulty

Broker, CDPE, SFR, CRS

Financing and You ?Straight answers to your questions                      

Recent headlines have brought even more attention to the changes in the real estate market and the new financing options. However, the news unfortunately has been seeing the glass 1/2 empty, instead of 1/2 full. 2008 and 2009, the Federal Government is subsidizing rates with very low interest rates and have made moves in legislation to have every Bank be more transparent to charges for buyers. This transparancy has interesting enough educated the seller, who are more open to help the buyer with closings costs, buy-down points and the price of their home. This recession or depressed market has opened people's eyes to terms that were not even considered when we were in a seller's market. Can I make some suggestions from my 20 years of experiance helping families find affordable financing? Here are some key thoughts:

1.Take advantage of the Current Interest Rates.  There are two ways to take advantage of the current interest rates is to refinance an existing loan, or secondly buy a new home. When purchasing a home you may find a ?down payment assistance program? if you are a first time buyer or have not owned a home for 3 years. Some sellers are actually offering points to help a buyer with the closing costs or to buy down the rate.

 2. Understand your FICO score.  What does FICO mean?

Fair Isaac Corporation established and trademarked the term FICO.  With my research, I never found the O, other than Oh, darn or Oh, good. (I am Just kidding, folks.). It probably stands for optimization or some meaningless O word. FICO is  a formula that is trying to figure out your statistical analysis of repayment. If you pay your bills on time, you will not have a problem. If, for example you ?forgot?  or ?put off? the decision to pay your taxes or your student loans, you will have a major problem.

3. Why do loan officers keep wanting to run my credit? Why don't they tell me the truth or being evasive on the phone when I call when I ask the current interest rate? Since rates  have a connection or a relationship with your FICO score, it depends what your FICO score really is, before they can quote you the rate. The higher the score, the lower the rate.

4.What is a Credit Score?FICO-Fair Isaac Corporation? Your credit score is generated by a math formula that is meant to predict credit worthiness with a score range of 350-850. Obviously the higher the number the more credit worthy you are seen by a bank or lending institution and less risk to the banker means a lower rate that will get quoted. The other factor that bears on your rate is what will be your "skin" or downpayment. No money down is no longer an option.

5. So what makes up your Credit Score?Here?s the percentage breakdown of a FICO score:

*         35%-Payment history.

*         30%-Debt ratio

*         15%- Length of credit history

*         10%-Types of credit: installment, revolving and loans

*         10%-Number of credit inquiries.

 

6.#1 major mistake by consumers who are looking to increase their score?Don?t close your old Credit Cards! Cleaning up your credit profile by getting rid of old or unused credit cards sounds like a good idea ? and it may be from an overall credit management perspective. If you are tempted to charge more than you should just because you have more availability to credit, then getting rid of that temptation by closing some credit cards might be your best course of action.

 

However, your FICO score takes into consideration something called a "credit utilization ratio". This ratio basically looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your FICO score. So, by closing an old or unused card, you are essentially wiping away some of your available credit and thereby increasing your credit utilization ratio.

For more information, contact Jan McNulty, who can introduce you to a lender that will give you the ?straight? talk.