FHA will cut fees on mortgage insurance in an effort to boost home buying

FHA will cut fees on mortgage insurance in an effort to boost home buying

By Tiffany Hsu

January 7, 2015, 5:58 PM

President Obama said Wednesday that the Federal Housing Administration will lower its high fees for mortgage insurance, a bid to encourage more purchases by first-time and middle-income home buyers..

The agency will drop its annual premiums on new mortgages to 0.85% from 1.35% of the total loan amount, the White House said ahead of Obama’s planned housing speech Thursday in Phoenix.

The new rate remains higher than historical levels but could shave about $900 off the average FHA borrower’s annual payment, the government said. On a $200,000, 30-year fixed home loan with less than 5% down, a borrower would save $818 after one year and $7,421 after a decade, according to real estate website Zillow.

In pricey California — where FHA loans are involved in up to 15% of home sales — the move could save average buyers as much as $2,000 a year, former FHA Commissioner David H. Stevens said.

The FHA rate cut could help more than 800,000 homeowners nationally save money and encourage 250,000 new home purchases in the next three years, according to the White House. Federal regulators also loosened lending requirements this fall on loans backed by mortgage finance giants Fannie Mae and Freddie Mac.

“The Administration will not tolerate a return to shoddy underwriting or unsustainable mortgage lending, but believes there are too many middle-class families with good credit by historical standards who remain shut out in today’s tight market and deserve a chance to buy their own home,” the White House said in its statement.

The economic benefits could extend to other industries, said Stevens, who is now chief executive of the Mortgage Bankers Assn. in Washington.

“It creates a lot of new jobs in moving, decorating, appliance installation and more,” he said. “It isn’t the magic pill that’s going to get the economy racing faster, but it is without question a very simulative outcome.”

The FHA backs home loans and charges borrowers fees to cover the cost of insuring lenders against default. The program is popular among cash-strapped buyers, who can put down as little as 3.5% of the house price, but higher mortgage insurance rates have made the loans less attractive.

The National Assn. of Realtors estimates that nearly 234,000 creditworthy borrowers — tens of thousands of them in California — were priced out of the housing market last year due to high FHA premiums.

The share of houses purchased by first-time owners was at its lowest level in nearly three decades, down to 33% from 38% in 2013 and trailing the long-term average of 40%, according to the National Assn. of Realtors.

Major players in mortgage lending, such as Wells Fargo & Co, stand to benefit, Jaret Seiberg of Guggenheim Securities wrote in a note to clients.

“Our expectation is that the biggest banks are best poised to take advantage of a new surge in refinancings,” Seiberg said. “They have existing systems and experience to handle a surge in volume.”

Mortgage insurance rates spiked after the housing crash. A higher default rate on FHA-backed loans meant heavier losses for the agency. Even as the economy slowly recovered, the FHA’s cash reserves sank. The agency raised its rates — which were just 0.55% in 2011 — several times to replenish the stockpile.

But in 2013, the FHA received a $1.7-billion bailout from the U.S. Treasury.

On Wednesday, U.S. Sen. Bob Corker (R-Tenn.) called the rate cut “bad news for taxpayers” and “yet another irresponsible, head-scratching decision from the administration in regards to our nation’s housing finance system.”

“The federal government should be winding down its involvement in the mortgage business, not engaging in a race to the bottom,” Corker said in a statement.

But the White House said Wednesday that better risk management and credit policies will help the FHA add a projected $7 billion to $10 billion each year to its cash cushion.

The government also said it would endeavor to further clear up lending standards, slash red tape and push for comprehensive legislation to reform housing finance.

Source:  http://www.latimes.com/business/la-fi-fha-insurance-rate-20150108-story.html



Copyright © 2015, Los Angeles Times

New 3% Downpayment Option With Conventional Financing

Mortgage lenders are making it easier get approved for a mortgage. Fannie Mae and Freddie Mac have announced a new low-downpayment mortgage program which requires just 3% down at closing instead of the previous 5% downpayment requirement. In offering a 3 percent down-payment program, Fannie Mae and Freddie Mac bring yet another financing option to today’s home buyers wanting to minimize their downpayment.


Effective for all loans on or after Monday December 15, 2014


Fannie Mae will allow LTV ratios up to 97% for certain conforming loan amounts on principal residence transactions.


According to consumer research conducted by Fannie Mae, the primary barrier to homeownership for first-time home buyers is saving money for down payments and closing costs. In support of ongoing efforts to expand access to credit and support sustainable homeownership, Fannie Mae is announcing an increase in the maximum LTV, CLTV, and HCLTV ratios for certain principal residence transactions.

Key Points/Details:

  • A maximum 97% LTV will be allowed with the following:
    • MyCommunityMortgage® (MCM®) purchase transactions if at least one borrower is a first-time home buyer and pre-purchase home-buyer education and counseling is completed,
    • Standard purchase transactions (non-MCM) if at least one borrower is a first-time home buyer, or
    • Standard limited cash-out refinances (non-MCM) of existing Fannie Mae loans. Verification must be in the file that the loan was sold to Fannie Mae.
  • All loans must be fixed-rate and secured by a one-unit principal residence. High Balance, ARM loans, or Manufactured housing is not permitted.
  • All loans must be underwritten with DU.
  • In addition, for MCM loans Fannie Mae will now allow reserves to come from gifts. This applies to both manually underwritten loans and loans underwritten with DU.
  • For MCM loans, MI coverage is 18%.  For standard purchase and limited cash out transactions, MI coverage is either 35% or 18% with LLPA’s.

The 12 hottest housing markets right now

And the biggest losers in the price growth race

November 26, 2014

RealtyTrac’s home price survey for October breaks out into some compelling data on the major metros.

Home prices are reaching toward pre-recession levels, but they’re not there yet overall and they’re starting to slow.

Still some markets are doing better than others. Here’s how it breaks down, according to the analysts with RealtyTrac.

Among metro areas with a population of 500,000 or more and sufficient home price data, those with the biggest annual increase in median sales price were Toledo, Ohio (up 33%), Detroit (up 27%), Cleveland (up 21%), McAllen-Edinburg-Mission, Texas (up 21%), and Dayton, Ohio (up 20%).

Other major markets with double-digit appreciation compared to a year ago included Memphis, Tenn. (up 18%), Austin, Texas (up 17%), Miami (up 16%), Houston (up 16%), Cincinnati (up 15%), and Chicago (up 15%).

“While price appreciation has leveled off month to month, home prices have increased significantly from a year ago and we expect this trend to continue,” said Craig King, COO of Chase International, covering the Lake Tahoe and Reno, Nev., markets.  The median sales price in Reno was unchanged from September to October but up 15% from a year ago — the 29th consecutive month with a year-over-year increase in the market.

“A number of things have lined up regionally to provide game changing growth as we look forward,” King said. “The world is aware that Tesla is making a move in to Northern Nevada with their Gigafactory, but there are other huge projects on tap as well.  Collectively, these projects could account for population gains of 20 to 25% in the region over the next four to five years. With limited inventory the demand for housing will be unprecedented.”

Home price appreciation accelerated in 45 of the 97 (46%) metro areas nationwide with a population of half a million or more and with sufficient home price data.

Other major markets with accelerating home price appreciation were Chicago (15% annual appreciation this year compared to 11% a year ago), Dallas (11% annual appreciation this year compared to 7% a year ago), Pittsburgh (8% annual appreciation compared to 5% a year ago), Seattle (10% annual appreciation this year compared to 7% a year ago), Tampa (15% annual appreciation this year compared to 12% a year ago) and  Baltimore (2% annual appreciation this year compared to 0% a year ago).

“The continued rise in Seattle median home prices is largely a result of a strong local economy, low housing supply, and high buyer demand,” said OB Jacobi, president of Windermere Real Estate, covering the Seattle market. The percentage of distressed home sales in Seattle has returned to pre-mortgage crisis levels, with activity being driven by the hardships that have always instigated short sales, such as job loss, divorce, illness, and job relocation. Most of the distressed properties have shifted into the outlying areas around Seattle and are selling for well under the median home price.

Top 12 Markets with Fastest Accelerating Home Price Appreciation
Market October 2014 Median Sales Price Oct 2014 Annual HPA Oct 2013 Annual HPA
McAllen-Edinburg-Mission, TX $151,000 21% -6%
Dayton, OH $100,000 20% -1%
Cincinnati-Middletown, OH-KY-IN $127,000 15% -4%
Cleveland-Elyria-Mentor, OH $114,900 21% 2%
Akron, OH $114,000 17% -2%
Toledo, OH $100,000 33% 15%
Tulsa, OK $135,000 11% -5%
Lancaster, PA $169,900 11% -5%
Honolulu, HI $480,000 10% -4%
Nashville-Davidson–Murfreesboro–Franklin, TN $170,000 13% 1%
Charlotte-Gastonia-Concord, NC-SC $164,000 10% -1%
Columbus, OH $147,000 14% 3%

Meanwhile, on the south end of the scale, home price appreciation slowed compared to a year ago in 52 of the 97 (54%) metro areas nationwide with a population of half a million or more and with sufficient home price data.

Last Year’s Highest Home Price Appreciation Markets Losing Steam
Market October 2014 Median Sales Price Oct 2014 Annual HPA Oct 2013 Annual HPA
Detroit-Warren-Livonia, MI $130,000 27% 38%
San Francisco-Oakland-Fremont, CA $625,000 12% 34%
Sacramento–Arden-Arcade–Roseville, CA $285,000 10% 30%
Modesto, CA $215,000 16% 28%
Stockton, CA $245,000 20% 27%
Riverside-San Bernardino-Ontario, CA $250,000 10% 27%
Houston-Sugar Land-Baytown, TX $219,900 16% 27%
Atlanta-Sandy Springs-Marietta, GA $155,000 13% 25%
Phoenix-Mesa-Scottsdale, AZ $185,000 6% 25%
Los Angeles-Long Beach-Santa Ana, CA $492,000 9% 24%
Oxnard-Thousand Oaks-Ventura, CA $480,000 7% 24%
Bakersfield, CA $170,000 12% 24%
Boise City-Nampa, ID $185,000 0% 23%
Jacksonville, FL $130,000 4% 23%
San Jose-Sunnyvale-Santa Clara, CA $692,000 11% 23%
Orlando-Kissimmee, FL $149,900 11% 22%
Boston-Cambridge-Quincy, MA-NH $300,000 3% 21%
Cape Coral-Fort Myers, FL $145,000 12% 20%
Miami-Fort Lauderdale-Pompano Beach, FL $180,000 16% 20%
San Diego-Carlsbad-San Marcos, CA $440,000 8% 19%
Las Vegas-Paradise, NV $171,600 11% 19%

Other major markets with decelerating home price appreciation in October were New York (1% annual appreciation this year compared to 4% a year ago), Philadelphia (4% annual depreciation this  year compared to 5% annual appreciation a year ago), Houston (16% annual appreciation this year compared to 27% a year ago), Miami (16% annual appreciation this year compared to 20% a year ago), Atlanta (13% annual appreciation this year compared to 25% a year ago), and San Francisco (12% annual appreciation this year compared to 34% a year ago).

As for distressed and short sales, the picture was different, and concentrated in the Sunbelt and sand states.

Short sales and distressed sales — in foreclosure or bank-owned — combined accounted for 13.8% of all residential property sales in October, up slightly from 13.7% the previous month, but down from 14.7% in October 2013.

Markets with the highest percentage of distressed and short sales combined were Las Vegas (33.6%), Stockton, Calif., (33.6%), Modesto, Calif., (31.7%), Lakeland, Fla., (28.9%), and Orlando (28.4%).

Short sales accounted for 5.0% of all residential property sales in October, unchanged from the previous month and a year ago and not far above the pre-recession average of 4.5% a month in 2006.

Markets with the highest percentage of short sales were in Orlando (14.2%), Lakeland, Fla., (13.0%), Palm bay-Melbourne-Titusville, Fla., (11.8%), Cape Coral-Fort Myers, Fla., (11.8%), and Las Vegas (11.5%).

Twelve states saw an increase in short sales share compared to a year ago, including New Jersey (7.1% compared to 4.6% a year ago), Illinois (9.9% compared to 6.6% a year ago), Maryland (9.3% compared to 7.2% a year ago), Ohio (5.4% compared to 4.7% a year ago), Nevada (10.8% compared to 9.8% a year ago), California (4.6% compared to 4.3% a year ago), Michigan (6.5% compared to 6.2% a year ago) and Arizona (5.8% compared to 5.6% a year ago).

Foreclosure auction sales share increases most in Midwest, Rust Belt cities

Sales at the public foreclosure auction accounted for 1.3% of all U.S. residential property sales in October, up from 1.2% in September and up from 0.7% in October 2013.

Markets with the highest%age of sales at foreclosure auction were Lakeland, Fla. (5.4%), Orlando (4.2%), Palm Bay-Melbourne-Titusville (4.1%), Miami (4.1%), Tampa (4.0%) and Las Vegas (3.5%).

Markets with the biggest annual increases in share of foreclosure auctions were Des Moines (1.9% compared to 0.1% a year ago), Akron, Ohio (2.1% compared to 0.1% a year ago), Philadelphia (1.9% compared to 0.1% a year ago), Chattanooga, Tenn., (1.3% compared to 0.1% a year ago), and Fresno, Calif., (0.9% compared to 0.1% a year ago).

Alternatives to Putting 20 Percent Down on a Home

If you can’t afford a hefty down payment, here are your options.

Falling short of a 20 percent down payment shouldn’t prevent from purchasing the home you desire. You have some excellent options.

It’s a mantra often repeated in the real estate industry: If you want to buy a house, you need a 20 percent down payment. But with the average house in the U.S. costing $311,400 as of December 2013, according to the Census Bureau, all one has to do is the math to get a coronary. Raising a 20 percent down payment isn’t an easy thing to do.

Fortunately, you don’t have to. “It’s a myth that all homebuyers must have a 20 percent down payment to buy a home,” says Nancy Herrera-Siples, a Riverside, Calif., branch manager at Primary Residential Mortgage.

“Putting less than 20 percent is OK with most banks,” agrees Christopher Pepe, president of Pepe Real Estate in Brooklyn, N.Y. So why do you constantly hear that you need to put 20 percent down? Because if you don’t, it usually means you’ll have to shell out money for either private mortgage insurance or government insurance, which is usually financed by the Federal Housing Administration. Mortgage insurance protects the lender in case you can’t make your payments and the house is foreclosed on. But PMI payments don’t last forever. When your loan-to-value ratio is 80 percent, you can ask the lender if you can stop paying PMI; at 78 percent, the lender is required to cancel it.

[Read: How Much Will That Low Down Payment Cost You?]

Still, PMI can easily cost a couple hundred dollars a month, assuming your house is valued in the neighborhood of $200,000. Pepe says the average he sees is $700 a month just for PMI. But keep in mind that he’s based in New York City, which boasts one of the highest costs of living in the country.

So if you really want a house and you’re looking for alternatives to putting 20 percent down, here’s what you need to know.

Figure out financing before looking for a house. There are numerous programs that will help you buy a home without 20 percent down, says Dan Smith, president of Private Mortgage Solutions, a mortgage bank in Atlanta.

But, Smith adds, “All of these programs have various lender, property and borrower qualify requirements and restrictions. A knowledgeable mortgage banker or mortgage originator should be able to provide assistance and details.”

You’ll have to hook up with a lender eventually, and Smith suggests doing it early. “Don’t pick a property and then work backward toward financing,” he advises. “You’ll only frustrate yourself.”

Another reason to have a mortgage banker in your corner: “Lenders can layer programs to help each borrower overcome dilemmas,” Herrera-Siples says, citing common problems like not having a down payment or needing lower monthly payments.

Try your own bank first. This is advisable especially if you have a good relationship with the bank, says Amanda Monette, a real estate lending officer with Rockford Bank & Trust in Rockford, Ill. “You may have a better shot of getting a loan, even if you don’t have the money for a down payment.”

[Read: 10 Easy Ways to Save for a Down Payment.]

If you do all of your banking at your local bank, including investments and a savings account, Monette says this will work your favor. “Extra points,” she says, “if your parents, grandparents and other relatives bank with the same institution as you do. A banker may be more willing to go the extra mile because he or she knows you and your family and knows that you will be a good risk.”

Some common but unconventional routes you might take. “There are a variety of options available to consumers,” Smith says, citing the FHA, which offers mortgages in which the homeowner can put as little as 3.5 percent down. “The [U.S. Department of Agriculture] offers a program that allows buyers to purchase a qualified property with zero down. And many conventional leaders will allow subordinate financing to bridge the gap between the down payment and first mortgage loan amount.”

But, of course, there’s no free lunch, and some of these unconventional roads lead to an expensive toll booth. For instance, FHA loans, which were once considered great loans for first-time, low-income homebuyers, are much more expensive than they used to be because of mortgage insurance. With subordinate financing, you’re taking out another loan to make up for not having the 20 percent down payment, and the second loan often has a higher interest rate than the first. Make sure the math works out so that you’re not paying more in the long run than if you paid the PMI.

USDA loans, available for people who want to purchase a home in an area considered rural, are generally still well-regarded and coveted by many homeowners with incomes considered low to moderate. There are a range of limits depending on the type of USDA loan you’re eligible for and state you live in, as well as a lot of criteria to meet. For example, if you are part of a Colorado family with one to four people and a household income of around $70,000 or less, you’d probably qualify.

Check with your state. While you’re figuring out how to finance your home, don’t forget that your state may have loan programs to help homeowners – especially first-time buyers.

[See: A Step-by-Step Guide to Homebuying.]

For instance, Illinois recently announced its “Welcome Home Illinois” program, in which first-time buyers or people who haven’t owned a house in Illinois within three years can get $7,500 in down payment assistance with an interest rate as low as 3.99 percent for a 30-year fixed rate mortgage. It’s aimed at working class families – a family of three in Chicago can earn as much as $106,000 in annual household income and qualify. In other parts of the state where the cost of living is lower, the same family of three can earn no more than $82,915 to qualify. And the homebuyer must have a credit score of at least 640.

Whatever you do, don’t get too cute. If you don’t have the 20 percent, it may be best to keep saving until you reach that amount, or at least get closer to it. Just because you find a way to finance your move-in doesn’t mean you should take it. You want have enough left over in your budget to enjoy your house, not worry every month about how you’re going to pay the mortgage. In other words, you can liveunder a roof without 20 percent down – but is the alternative something you can live with?

Market Update-August 2014

Median home prices rebounded in both King and Snohomish counties in Sept after a significant drop in August. Except for Skagit Co.the market appears to be stabilizing. Below are figures for our 4 county areas showing the current median prices and appreciation from Aug 2013 to Aug 2014. Figures courtesy of NWMLS.
County Median price 12 mo appreciation
King $420,000 up 9.1 %
Snohomish $310,000 up 8.8 %
Pierce $225,000 up 2.3%
Skagit $216,500 Down 7.8%

Down Payment Assistance Grant Program!!-This truly is FREE MONEY for qualified buyers

HomeStreet Bank recently partnered with NHF Platinum (National Homebuyers Fund) to offer a new Down Payment Assistance Grant program!!

This program is similar to Washington State Housing and Finance Commission Loans (WSHFC) for underwriting purposes but the Grant is forgiven at closing and does not need to be repaid!  This truly is FREE MONEY for qualified buyers.

Quick Look…

–Grant – FREE MONEY!!

–This money is truly non-repayable and is forgiven at closing, there is no lien on title like WSHFC loans.

–FHA, VA – up to 5% of loan amount

–this would cover all of Down Payment for FHA and most of the closing costs.

–USDA – up to 3% of loan amount

–this would cover all out of pocket expenses

–Conventional – up to 3% of loan amount (for a 5% down Conv loan)

–this would cover a portion of their down payment

–Income Limits…Snohomish and King Counties

–$94,000 FHA, VA USDA – similar to WSHFC (only $3000 less)

–$115,000 Conventional

–Total Household Income – NHF/CHF does NOT use Total Household Income for income limit calculation, they only use the borrower(s) income.

–640 minimum FICO for FHA, VA, USDA.  740 minimum FICO for Conventional.

–Homebuyer education required

–DO NOT need to be a first time buyer, can own another property and qualify


WSHFC Home Advantage FHA Loan

$300,000 Purchase Price, 4.625% 30yr Fixed FHA Interest Rate, $2187/mo total payment (including escrow & MI), $4570 cash for closing (including Down Payment Assistance)

–Equity after closing is negative 2.16%.  This is due to the down payment assistance option that shows as a 2nd lien payable when they sell or transfer title.

NHF/CHF Platinum FHA Loan

$300,000 Purchase Price, 4.75% 30yr Fixed FHA Interest Rate, $2209/mo total payment (including escrow & MI), $4574 cash for closing (including Down Payment Assistance)

–Equity after closing is positive 1.75%.  This is due to the down payment assistance Grant not showing as a 2nd lien, it is forgiven at closing.

As you can see, the rate is slightly higher for NHF/CHF Platinum which increases the payment by $22/mo but your buyers are in positive equity position right away by forgiving the Down Payment Assistance Grant.

Why Rent When You Can Own!

September 18, 2014 at 6:00 AM

Census: Seattle saw steepest rent hike among major U.S. cities

Posted by 
fyiguy-risingrents-cClick to enlarge

Seattle apartment-dwellers: You thought your rent was high — well, you’re right.

Data released Thursday by the Census Bureau rank Seattle — for the first time — among the 10 most-expensive cities for renters.

To achieve that dubious honor, we had to claw our way past Oakland and Long Beach, Calif., on the list of high-priced places to live.

So how’d we do it?

Simple. Between 2010 and 2013, Seattle renters took a bigger hit to their pocketbooks than renters in any other large U.S. city. The gross median rent here — that is, rent plus utilities — spiked by $113, or nearly 11 percent. That’s the sharpest rise in rent among the nation’s 50 most-populous cities.

Seattle is the only large city where rents jumped by more than $100, and by more than 10 percent, in this period.

The median amount paid by Seattle renters, across all size units, reached $1,172 in 2013. The census data also show that three out of five Seattle apartments now rent for more than $1,000.

Last week on FYI Guy, we explored data about people leaving Seattle — maybe they’re in search of cheaper rent?

fyiguy-risingrents-mapClick to enlarge

But if that’s your goal, forget about fleeing to the Eastside.

Rents in Bellevue rose even more dramatically than they did in Seattle, jumping by $152 between 2010 and 2013. The median rent there now stands at $1,494 — that’s $3 higher than San Francisco, believe it or not.

The census data also show that Seattle’s apartment-dwelling population reached 307,000 in 2013 — a 13 percent increase since 2010. So while it may not be cheap to rent here, that certainly isn’t keeping people away.



MADISON, N.J. (August 6, 2014) – CENTURY 21 Real Estate, the iconic brand with the world’s largest real estate franchise sales organization, announced that it has been ranked highest in overall customer satisfaction by the J.D. Power 2014 Home Buyer/Seller Satisfaction StudySM, released today. Specifically, CENTURY 21® Real Estate swept the awards by receiving the highest ranking among national real estate companies across all four customer satisfaction segments in the study, including: First-Time Home-Buyer Satisfaction, Repeat Home-Buyer Satisfaction, First-Time Home-Seller Satisfaction and Repeat Home-Seller Satisfaction.

“CENTURY 21 sales professionals understand that real estate is about developing relationships and building trust with their customers. Customer satisfaction is at the core of everything that they do each and every day,” said Rick Davidson, president and chief executive officer, Century 21 Real Estate LLC. “Our brand reputation is earned and measured with every customer interaction, and these J.D. Power results showcase the quality of our franchise broker network and their affiliated sales professionals.”

The study, now in its seventh year, measures customer satisfaction among first-time and repeat home buyers and sellers with the nation’s largest real estate companies. Overall satisfaction is measured across four factors of the home-buying experience: agent/salesperson; real estate office; closing process; and variety of additional services. For satisfaction in the home-selling experience, the same four factors are evaluated plus a fifth factor, marketing.

“The feedback from thousands of home buyers and sellers in this study shows that the dedication and commitment of the C21® System to caring about the consumer, delivering excellent service and establishing trust as a differentiator in the market,” said Bev Thorne, chief marketing officer, Century 21 Real Estate LLC. “This study comes at the culmination of three years of hard work and dedication to a strategic roadmap that our brokers have embraced since 2011. By focusing on the quality of their affiliated sales professionals, they have raised the bar for customer service.”

The 2014 Home Buyer/Seller Satisfaction Study includes 5,810 evaluations from 4,868 customers who bought and/or sold a home between March 2013 and April 2014. The study was fielded between March 2014 and May 2014.

Headquartered in Westlake Village, Calif., J.D. Power is a global marketing information services company providing performance improvement, social media and customer satisfaction insights and solutions. The company’s quality and satisfaction measurements are based on responses from millions of consumers annually. For more information, visit jdpower.com. J.D. Power is a business unit of The McGraw-Hill Companies.

CENTURY 21® Recognized with Highest Overall Customer Satisfaction

The Five Factors Driving Your Credit Score

When it comes to buying a home or refinancing your mortgage, one of the first things your lender will need is a credit report. Like most people, you probably have a general sense of whether or not you have good credit. If you routinely pay your bills late, or don’t pay them at all; you can expect your credit score to be low. However, if you’ve never missed a payment on a loan or any other bill, yet your credit score is still less than outstanding (meaning anything less than 750) you may not be sure why.

The three major credit reporting companies, Experian, TransUnion and Equifax all use similar basic criteria for determining credit. Here’s a look at the five factors that determine your credit score.

Payment History
Your payment history is incredibly important. In fact, your personal payment history accounts for as much as 35% of your overall credit score. Serious delinquencies in payments including foreclosures, short sales, repossessions and bankruptcies all drive your credit score down. Late payments will also have a negative impact, though their impact may not be as severe. Being 30 days late is always preferable to being 60 days late, and your more recent delinquencies will hurt your credit more than delinquencies from a few years ago.

If you’ve always been current with your payments, but found yourself making a late payment once or twice -perhaps due to being out of town or as the result of a personal emergency- pay the balance immediately. Once you’ve done so; call the creditor. They may be willing to delete the delinquency if your history shows that it was just a fluke.

Credit reporting companies will also base your credit score largely on your balances relative to your credit limits. Your existing balances will account for roughly 30% of your score. For example, if you only have one credit card with a limit of $10K, and you currently owe $9,500, the debt to availability ratio will drive down your score. However, if you have available credit on multiple cards of $40K, but only owe $9,500, your debt to availability is viewed more favorably by the reporting companies.

Credit History
The longer your credit history, the better. Credit reporting companies like to see that you’ve borrowed and paid back your loans consistently over time. It establishes a record of reliability that will drive your credit score up. To that end, if you have had a credit card for 10 years, but rarely use it; it’s still a good idea to keep the account open. Longevity of credit can count towards as much as 15% of your credit score, so it’s wise to maintain open lines of credit, even if the interest rates aren’t great.

Type of Credit
The type of credit you have on your report will account for 10% of your total credit score. Not all types of credit and/or loans are weighted equally. For example, department store or electronics store credit cards are generally provided through a finance company rather than your credit union or local bank. Borrowing from established financial institutions and banks is viewed more favorably than borrowing from finance companies.

Multiple inquiries into your credit will lower your credit. However, when you are shopping for a home loan or an auto loan, credit bureaus will understand that multiple inquiries within 10 days- 2 weeks may be necessary, and as such will only count the inquiries as a single “hit” to your credit. However, ongoing inquiries will result in negative “hits” on your credit, lowering your score. It’s not a good idea to keep opening lines of credit year round.

No matter what your credit score is currently; there are always ways to improve it

Market Update: June 2014

Year over  year appreciation ranges between 6-9% for all 4 counties Century 21 North Homes serve.

Below are figures for our 4 county area showing the current median prices and appreciation from May 2013 to May 2014.

Figures courtesy of NWMLS.

County Median price 12 mo appreciation
King $398,000 up 6.1 %
Snohomish $305,000 up 7.0 %
Pierce $215,000 up 9.0 %
Skagit $225,750 Up 6.1 %