Here are
some answers to frequently asked questions about buying a home.
Q. What is
a fico score and what does it say about my credit?
A. 1. The term “fico” is a mathematical number invented
by a man named Fair Isaac. His company Fair Isaac Company, thus F.I.C.O.
was named. It is a tool for lenders to use in evaluating the risk associated
with loaning you money.
2. F.I.C.O scores range from 400 to a high of 900. 620-650 is low to
fair and 690 is considered good. 740 and higher is A+ credit.
Q. How can
you raise your fico scores?
A. 1. Close out all unused accounts (credit available).
2. Pay balances down so that you are not at or near the limit.
3. Stop or limit inquires.
4. Don’t list multiple addresses, phone numbers and employers.
5. Pay all accounts on time.
Q. What is
calculated into my score?
A. 1. How long you’ve lived at your current address.
2. Your financial obligations (debt-to-income ratio).
3. Any late payments.
4. The amount of credit you have outstanding and that you are using.
5. The amount of time you’ve had credit established.
Q. What factors
put me at higher risk for a low score?
A. 1. Excessive amount owed on accounts.
2. Proportion of loan balances on installment accounts.
3. Too many new or existing accounts.
4. Too many recent credit checks.
5. Credit card balance vs. limit is too high.
Q. Why do
different companies quote different scores on the same person?
A. Each company has their own way of coming up with your score.
Q. What factors cause my fico score to change?
A. 1. Excessive activity.
2. Past due debts.
3. Job change- better or worse.
4. Moving
5. Marital status.
6. Other- any reporting changes from debtors.
Q. What is
a debt ratio?
A. Debt ratio is a number that compares what you have (income) available
against the total of what you owe.
--------Job vs. Bills; Income vs. Debts you currently owe.
Q. What can I do if a lender turns me down? Should I just forget it?
A. 1. Other lenders might overlook some of your credit issues.
2. Some information on your credit report may be wrong and can be corrected.
3. I can help you clean your credit up and call to workout payment arrangements
for release of past due debt.
4. Sometimes you need to wait for a few months to let your credit "settle"
after having a lot of activity.
Q. What is an appraisal and why does the lender require it? Do I pick
the appraiser?
A. 1. Appraisal is a calculated value "assessed" by a certified
appraiser. They measure the size, location, and condition and average
cost of other property nearby related as possible. They take all the
data collected and compute their "best guess" at what value
they determine.
Q. What do we do when we get a lower appraisal than needed for the lender?
A. The seller will have to find ways to "up" the value for
the loan. There are some very simple ways to add value- paint, landscape,
updates, and repairs. The lender usually contracts the appraiser.
Q. How do you know how much down payment to make?
A. 1. The lender usually requires a % of the sales price.
2. The amount due down to get the better interest rate you want.
3. How much down can remove PMI- more down.
4. Debt to income ratio.
5. Credit history.
Q. Where can I get the money for a down payment?
A. 1. Savings
2. Gift (parents, etc.)
3. Personal loan
4. Down payment services (rates vary)
5. Sale of personal property (car, boat, etc.)
6. Liquidated assets
Q. How much is Home Owners Insurance?
A. The prices have several things that affect them:
1. What area is it in?
2. Higher rates for more rural areas further away from fire dept.
3. Age of the property.
4. Credit history. Insurance companies believe that poor credit makes
for a higher risk of destruction of property.
5. Condition of property.
Q. What does a homeowner’s policy cover?
A. It depends on the policy, but usually not things that wear out. It
does cover:
1. Roof- if damaged by a storm or if struck by lightening, otherwise
it’s not covered.
2. Fire to structure.
3. Burglary.
Q. What is a home warranty, how much does it cost, and who pays for
it?
A. Anyone can pay for it, buyer or seller. A policy costs around $375.00.
Policy repairs damaged or broken items in the home: appliances, plumbing,
roof, heating and air, if it should become inoperable. A complete list
comes with the policy.
Q. How do you get the repairs done?
A. Call an 800 number and tell them the address. They call the repairman
for you. If you call the repairman, you're responsible for paying them.
Q. How much does it cost me for the warranted items repaired?
A. Between $50-55 per each visit or call.
Q. What is PIM (Private Mortgage Insurance) and why do I have to pay
for it?
A. It is an insurance policy that you’re required to take out.
But it doesn’t protect you.
It protects the lender from loss in the event you default on your loan.
PMI is typically
required on mortgage loans where there is no cash down payment, or where
the down
payment is less than 20 percent of the total loan. Many lenders allow
you to drop PMI
once your equity exceeds 20 percent.
2. Typically PMI might add anywhere from $60 to $120 to your initial
monthly housing payment. But the situation can be much worse if you
have bad credit.
Q. Do we pay PMI for the full term of the loan?
A. NO- as your equity builds, lenders will more than likely remove their
requirements at the 80% equity.
Q. Why is a legal description necessary when buying property?
A. 1. The law only recognizes the certified designation from the county
records of the
property's address.
2. The description usually says a part of the _____means that the township
book is only a portion of it and not the total township area.
Q. Do I have to be responsible for my recorded legal description?
A. 1. Yes and No. It is a way to be certain about what you are buying
and the legality of
owning a property. I always get tax records for all my clients to check
for the right
property and to check for tax paid or tax debts against the property.
2. Always use a good closing company to help make sure the deed is written
correctly.
Q. Why is everybody so excited about the interest rates? What does it
mean?
A. 1. You get more house for less money.
2. You pay less interest to the lender.
3. Get more and pay less.
Example: $80,000 @ 6% for 30 years = $320.34/mo
$80,000 @ 8% for 30 years = $479.64/mo
That's a difference of $159.30/mo!
$159.30 X 12 = $1,911.60 pay savings! That would pay for taxes and insurance.
Q. What are discount points?
A. 1. In addition to the interest rate, lenders may charge for discount
points, origination fees, the appraisal, title and credit reports, and
other miscellaneous items.
2. Discount points and origination fees are usually the largest fees
lenders charge, so they make the most difference in determining which
scenario is better. For this comparison, don’t worry about the
other miscellaneous fees, such as the appraisal, title and credit reports.
These charges are much less significant than points. Each point paid
equals 1 percent of the loan amount, so if $100,000 is borrowed and
you have to pay three points, you are actually getting $97,000. However,
you have to repay $100,000, and have to pay interest on that. The reason
lenders charge discount points is to change the interest rate that is
paid. The more points, the lower the rate, and vice versa.
Q. What are
closing fees and who has to pay for them?
A. 1. The charges from services performed by agents on your behalf to
get your property
ready to sell, get a clean title, title insurance, agents fees, and
time fees for filing with the county to record taxes for your protection
of new ownership.
2. Who pays can sometimes be financed within the loan.
Q. What are the closing fees?
A. Closing agents, $200 usually split between the buyer and seller.
Title Insurance- determined by policy maker.
Revenue stamps- 3.30% usually split 1.65 x per 1,000
Taxes- any taxes due at the time of sell will be collected or dispersed
at closing.
Low-Income Housing
1. ARVAC offers assistance for qualified buyers.
2. USDA offers assistance.
3. First time homebuyer program.
4. Attach co-signer.
5. Rental assistance help.
