Archive for the ‘Finance’ Category

FICO TRUTHS

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FICO logo

FICO logo (Photo credit: Wikipedia)

Whenever you apply for Credit for any of the 5 standard purposes the Lender will require a FICO report. This will be different for each category:

1. Mortgage – Most complete.

2. Auto – Next most complete.

3. Credit Card – Next most complete.

4.Personal loans – Next most complete.

5. Installment loans – Least complete.

Each will give a different FICO Score, Lowest for a mortgage, and highest for the Installment loan.

DO NOT CONFUSE ANY OF THESE WITH THE “FREE” Credit Reports you can get from all 3 of the major Credit Bureaus (EQUIFAX, EXPERIAN and TRANS UNION).

THESE ARE NOT FICO REPORTS and are of no practical use to anyone but you.

Factors contributing to someone's credit score...

Factors contributing to someone’s credit score, for Credit score (United States). (Photo credit: Wikipedia)

SANTA CLARA MARKET STABILITY

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Ohlone/Chynoweth–Almaden (VTA)

Ohlone/Chynoweth–Almaden (VTA) (Photo credit: Wikipedia)

 

 

For about 3 years we have suffered through the craziest Real Estate Market I have seen in the 25 years I been a Broker here in Silicon Valley. During much of this period properties would be Listed Wed, Open House Sat and Sun, offers accepted Tue/Wed and Sold by Thu, after an average of 24 offers (the record I know of  was 79 offers on a nice 3 bed, 2 bath in South San Jose). This drove prices up a a ridiculous rate.

This was the inevitable result of a wave of overseas investors stocking up on “Cheap” California Real Estate, a surge of well qualified 1st time buyers, and historically low interest rates.

This excess of Buyers (DEMAND) led to a shortage of properties for sale (SUPPLY)

There are 3 significant results of this great Sellers Market:

1. The virtual disappearance of SHORT SALES, and REO (Foreclosure) properties for sale. The rising prices have rescued many homeowners from the UPSIDE DOWN (Negative Equity) situation they had fallen into.

2. A restoration of the Laws of SUPPLY and DEMAND. Over the past 7 years many people were forced to postpone their retirements when most of their Home Equity vanished, and they had to hunker down till the market improved. The rising prices are  allowing them to restart their long term plans to retire and move out of the area.

3. A significant number of MOVE UP BUYERS who got stuck in small houses despite the arrival of small children are now able to get prices which allow them to move up to a more suitable house. They are selling to  buyers who are helped by the huge number of special FIRST TIME BUYER PROGRAMS now available from  City, County, State, and Federal sources. These are greatly enhanced by the fantastic interest rates.

Now here we are in early 2015 and things have returned to something close to normality with inventory for sale, and ready and qualified Buyers pretty much in balance in most of the valley. The exception to this is in those areas with the top rated schools where the boom times are still hot although on a lesser scale.

 

FICO IS BROKEN.

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FICO logo

FICO logo (Photo credit: Wikipedia)

 

FICO FIXING

 

It’s time to tame the FICO god to which the Dinosaurs of FANNIE MAE and FREDDY MAC  bow down, and at whose bidding the American mortgage industry has been tied up by silver ropes.

While I still hold the mortgage lenders greatly to blame for the financial misery of the last 7 years, I also accept their strong desire to make more and better loans now. However they are prevented from doing so by the restrictions required by the industry Overlords (FANNIE and FREDDY).

No matter your politics, our current mortgage system requires a Secondary Market Maker such as we already have with FANNIE and FREDDY. For the vast majority of cases If Bank “A” gives you a mortgage it is planning to sell it to one of these 2 entities.  They in turn will package it along with thousands loans more loans and sell them on to an Institutional investor (i.e. a Pension management Company) to become part of their long term portfolio.

The money they gave to Bank “A” is now available to make another mortgage for another QUALIFIED buyer NOTE the term QUALIFIED because this is where FICO comes into the story.

FANNIE and FREDDY will only buy the BANK “A” mortgage if it meets their qualifying guidelines. One of the most important is a sufficiently high FICO score.  Effectively this means they cannot make a mortgage loan to someone whose credit is excellent but is not reflected as such due to the out of date structures of the FICO score Providers, EQUIFAX, EPERIAN, and TRANSUNION.

These procedures go back to the 1980’s and simply do not reflect today’s society. Their inability to allow for alternate ways to measure financial stability (income self employed and Individual Contractors), Behavioral history, and other liquid assets means that approximately 25% of all qualified potential buyer are unable to get a mortgage. The Banks would love to be able to serve them but without an acceptable FICO score cannot do so.

We desperately need to bring FICO up to date and incorporate it in a Mark 2 version to include some of the other accredited Fair Credit Reporting tools freely available. A primary example is the VantageScore system designed for exactly this situation.

There’s no need to lower credit qualifying standards.

Just bring them into the 21st Century and give the locked out 25% the same home ownership opportunities as the rest of us.

VETERANS MORTGAGES

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English: AmeriFirst Home Mortgage logo

English: AmeriFirst Home Mortgage logo (Photo credit: Wikipedia)

Vahome1

Vahome1 (Photo credit: Wikipedia)

Why is it that you never seem to hear anything in the Mass Media about the BEST mortgage available? Especially for 1st time buyers.

FEATURES:                   

                   1. ZERO DOWN PAYMENTS.

                   2. NO PMI.

                   3. LOWERQUALIFYING REQUIREMENTS.

 

                   4. UP TO $615,000 PURCHASE PRICE.

                   5. LOWER INTEREST RATES.

 Who do you know that’s a Veteran or ex Veteran trying to buy a home??

 Pass this on to them.

NEW 3% DOWN PROGRAMS

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NEW 3% DOWN PROGRAMS

Great news for a large number of the potential 1st time home buyers who have been locked out of the market for the past few years by over cautious Lenders.

The new programs just announced are aimed at borrowers who have higher than required Income but less than the minimum down payment.

Both FANNIE MAE & FREDDIE MAC are going to accept 3% Down Payment on

FICO logo

FICO logo (Photo credit: Wikipedia)

new fixed rate loans to 1st time buyers.

FICO Scores in the 640 range may be able to qualify if there are compensating circumstances i.e. recently graduated, earning large income, but major debts from Student Loans etc.

Details are still coming in but this is major good news for this underserved segment of the market.

MORTGAGE CREDIT CLARITY

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Factors contributing to someone's credit score...

There are many different credit score providers out there. The best known of these are Experian, TransUnion, and Equifax, due to their being the most important when applying for a mortgage.

As they all use slightly different scoring algorithms, each will provide a different FICO (Credit Score) for any given person.

 

All regular Mortgage lenders have minimum acceptable FICO score requirements for anyone wishing to get a mortgage approval.

 

The most important thing to be aware of is that the credit report you get directly from any of these bureaus is not the same as the one the Mortgage Company obtains. (Theirs has much stricter requirements).

 

You might personally be given a 660 score, but when the Lender runs your credit they get a 640 which may not qualify for their loan on the terms you were hoping for.

 

I know of at least 12 other Credit Bureaus used by different businesses with industry specific standards, but these are not relevant to Real Estate Mortgage issues.

 

If you need help improving your Credit Score be very aware that there are more scam artists than reputable professionals in the Credit Repair business.

I can personally recommend Ken Strey who can be reached at:

 

Scorewell Inc. | 925-478-4732 | kenstrey@scorewellinc.com | http://www.scorewellinc.com 1371 Oakland Blvd Suite 201 Walnut Creek, CA 94596

WHBL IllUSION

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Clark Stanley's Snake Oil Liniment. Before 1920.

Clark Stanley’s Snake Oil Liniment. Before 1920. (Photo credit: Wikipedia)

 

A Solution without a problem.

 

The “Wealth Building Home Loan”( WHBL) currently being touted by a few Mortgage “Experts” is a modern equivalent of the old fairy story about “The emperor’s New Clothes”.

This product It has been carefully designed to solve a problem that does not exist, and in doing so it will wrong for the vast majority of home buyers requiring a mortgage.

If you like the taste of snake oil you will love it.

If you want to get the mortgage that’s best for you then talk to someone who will explain ALL of your alternatives and help find the optimum solution for you.This should be based on YOUR UNIQUE Current Financial Circumstances, and YOUR UNIQUE Medium and long term Plans

It should not be the WHBL.

 

HOME BUYERS QUESTIONS

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Absolute_Mortgage

Absolute_Mortgage (Photo credit: kathleenleavitt)

HOME BUYERS QUESTIONS

A recent study by THE INMAN GROUP showed that 90% of 1st Time Buyers felt they were well prepared when they started the home buying process. By the time they finished 56% said they should have known much more about the financial aspects of home buying.

The top problem areas were:

1. The Mortgage Selection options.

2. The Closing Escrow process, especially loan closing.

3. The Offer and negotiation process.

This supports my personal experience and justifies my firm policy of having a typically 2 hour initial meeting with new buyer clients to discuss these and a few similar areas. This allows us to deal with the probability that many hours spent on the Web has given them a toxic mix of good, wrong, ambiguous, and dangerous data, but no framework in which to analyze it.

The biggest single problem in my experience is the idea that house hunting should start with looking at houses.

WRONG

It should start with finding the optimal Mortgage FOR YOU based on your current circumstances and future plans.

When you have determined (accurately) how much you can afford and which type of mortgage is best suited for you, should you be using your valuable time to start viewing only homes which meet your parameters and pockets.

NOTE: It’s worth remembering that the 30 year fixed rate mortgage is seldom the best choice for the majority of buyers. However it is always the most expensive.

 

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THANKS TO BARBARA BOXER

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Barbara Boxer, United States Senator from Cali...

Barbara Boxer, United States Senator from California (Photo credit: Wikipedia)

As of Dec 1st both the IRS and Franchise Tax Board have put in writing that they no longer consider “Debt Forgiveness” resulting from a Short Sale to be taxable income under either State or Federal tax laws.

This removes a huge potential problem from anyone going through a short sale. Until now It has been common to receive a tax bill in the tens of thousands of dollars many months after the property has been sold.

Thanks are due to Barbara Boxer for her part in fighting this battle for us.

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SMART FHA CHANGE

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A great deal has been writen in the past few weeks about the MAJOR good news from FHA. It’s all useful to the professionals but let me try to take out the fluff and show just the bones.

As of August 8th, 2013, people who recently lost their homes due to temorary hardship in any of the following ways have a good chance of qualifying for a new FHA loan:

0. Foreclosure.

o. Deed in Lieu of Foreclosure.

o. Short Sale.

o. Bankruptcy (ch 7 and 13).

If you think you might qualify under the new guidelines talk to a Loan Agent who has strong FHA background. Understand that not all of them have strong FHA experience.

Logo of the Federal Housing Administration.

Logo of the Federal Housing Administration. (Photo credit: Wikipedia)

 

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