How Can a Couple Save for Their First Home Purchase?

February 11, 2020CreditBy toptierfinancial

The purchase of their first home is a milestone for any couple — largely because it often takes so long to get there. So many variables are involved that it’s almost impossible to know where to start. Besides, there’s already planning for many other expenses on top of this, from student loans to new cars.

Luckily, with a few tips and tricks, couples can make this dream a reality. Here are a few ways you and your significant other can start to save for your first home.

Communication Is Key in a Relationship

Too often, couples don’t talk about their finances. In fact, a 2018 survey of over 1,000 couples found 38% of respondents didn’t know about their partner’s debts or assets. This lack of communication can cause immense stress, which then leads to arguments and fights.

Not a pretty picture, right? This why consistent, non-judgmental conversation is crucial when buying a home. You want to be open and honest with your partner so that you’re always on the same page. Talk about how much each of you makes, what you have saved and if you owe any debt.

This is also the perfect time to discuss general expectations related to finances. If your significant other wants to buy a new purse, do they need to let you know beforehand? Every couple is different, but the importance of communication remains the same.

Decide on Your Dream Home Qualities

When you can clearly envision the home you want to buy, it’s much easier to save. Create a list of needs and wants for your future house – is it more important to have a finished basement or a large backyard? What neighborhood is best for you? Answering these questions will help you narrow down your search so that you can save your time or money.

Afterward, look at each of your credit scores and start to shop around for mortgage rates. Once you know roughly what your first home will cost, you can save appropriately and apply for the right amount of assistance. Try not to go in blind – in this scenario, preparation is essential.

Track Your Expenses

Even if you don’t plan to buy a home right away, you should create a monthly budget to make the most of your money. It’s one thing to keep track of your own expenses, but when you throw another person into the mix, it can become a bit more complicated.

Sit down with your partner and begin with sharing your goals. These may be short-term things like a beach vacation or long-term objectives like saving for retirement. Then, see how long each of these will take to achieve and how much money you’ll need to set aside for them to happen.

You may find you both will need to eat out less or pick up side gigs to make it all work. That’s okay – at least you know what actions are necessary. These plans will help you accomplish your intentions in the long run, and in the meantime, your dinner dates can be just as special with home-cooked meals.

Home Buying Can Strengthen Your Relationship

Throughout this entire process, the most important thing you and your partner can do is remain realistic. While optimism is a good thing, it’s also essential to be levelheaded when it comes to serious financial decisions like your first home.

Narrow down your search and track your expenses so that you can save the right amount of money for what you want. Above all else, talk to each other — it’ll make the process that much easier and more memorable.

Holly Welles, Real Estate Writer, The Estate Update

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How Can I Budget for Home Improvements?

September 6, 2019CreditBy toptierfinancial

Home improvements allow you to to make upgrades and add convenient features to your house. In 2018, American homeowners spent around $394 billion on improvement projects, including air conditioning and heating systems, waterproof roofs, soundproof rooms and renewable energy.

Do you want to save money for your dream renovation? Then follow the six tips below for creating a budget and sticking to it.

1. Determine Your Goals

Before you begin a renovation project, ask yourself what you hope to accomplish. Perhaps you want more counter space for appliances and dinner prep? Maybe you’d like an upgraded bathroom with a whirlpool tub and heated tiles? Once you’ve narrowed it down to one goal, determine how much you’re willing to spend.

2. Estimate the Costs

You have a goal — it might be a new patio or expanded master bedroom. Now it’s time to determine the costs. Experts say you should never spend more on a room than its value toward the home. For example, say your home is worth $200,000, and the kitchen takes up 15% of the square footage. In this case, you wouldn’t want to spend more than $30,000 on a kitchen remodel.

3. Account for Hidden Fees

You never know how much a renovation will cost until you start digging. Sure, your home looks perfect on the outside. However, it’s not uncommon for a remodel project to dig up hidden issues, whether beneath floorboards or under wallpaper. Plan for these expected fees by cushioning your budget with an additional 10-20%.

4. Understand Cost vs. Gain

You’ve probably heard the saying, “You need to spend money to make money.” The same is true when it comes to remodeling your home. The added value often outweighs the cost of upgrades and improvements. If you’re ever planning on selling your home, the added return on valued renovations can help with your budget down the line.

This is a personal decision, as only the homeowner can know which changes they’ll value most. But if you’re tempted to spend less in the moment, you may be reducing the chance to earn on long-term gains. As a general rule, opt for renovations with timeless appeal, including hardwood flooring, mid-range kitchen upgrades and bathroom accessibility changes.

5. Limit Your Wants

When you first start a new project, you might feel the urge to splurge. It may seem like you have plenty of funds for fixtures and finishes, only a small fraction of the entire budget. As the project continues, though, you’ll begin to see the money slowly disappear. It’s OK to make a few sacrifices for something you want, but it’s necessary to limit your wants to save for potential setbacks.

6. Assess Financing Options

Most people can’t cover all remodeling expenses with cash. In this case, you’ll have to borrow to finish the project. One option is a home-equity line of credit, which allows you to borrow money — up to a certain amount— when needed. Another choice is a home equity loan, where you apply for a lump sum up front and repay at a fixed interest rate in monthly installments.

Are you planning a home improvement project? Save money the easy way by creating a budget. Determine your No. 1 goal and come up with the estimated costs. Don’t forget about hidden fees and think about the value of the upgrade once complete. If you don’t have enough cash on hand to cover a remodel, consider convenient financing options to fund the changes you’re dreaming of.

Holly Welles, Real Estate Writer, The Estate Update

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Low Credit Score? You Can Still Get a Mortgage Loan

August 26, 2019CreditBy toptierfinancial

low credit score mortgage

Do you have a low credit score? You may be in for a little luck if you want to buy a home.

It’s easier to buy a house now than it was a decade ago. More homebuyers are qualifying for a mortgage with a low credit score than they did just after the Great Recession, partly because of more lax Federal Housing Administration loans. Higher debt is also being allowed more often by home lenders.

A study by the Fair Isaac Corporation, or FICO, which is the most widely used type of credit score among lenders, found that credit scores for new mortgage originations have been dropping since tighter credit policies were enacted after the housing crisis.

That sounds like an oxymoron — lower credit scores allowed by mortgage lenders who tightened underwriting standards — but the looser requirements are mainly allowed by FHA mortgage loans that are among the easiest to get for people with low credit.

New mortgage loans with credit scores less than 700 increased from 21.9 percent of all mortgages in 2009 to 29.7 percent in 2017. These include subprime loans for borrowers with scores in the 400s. New mortgages with FICO scores less than 750 increased from 41 percent to 53 percent during the same time.

FICO scores range from 300 — which shows severe credit history problems and a high risk of default — to a high of 850 — where missed payments and default risks are extremely low. The higher a credit score is, the better chance the loan applicant has of being approved at a low interest rate.

Loan originations for FICO scores of less than 650, which are considered mediocre or bad scores, increased from 9.1 percent in 2009 to 10.9 percent in 2017.

More debt, too

Bigger debt-to-income ratios, or DTI, have also been allowed in FHA loans, according to FHA data. DTI measures a home buyer’s ability to repay their loan. Household income is weighed against ongoing monthly debt such as credit cards, auto loans, personal loans and other obligations, plus mortgage payments. The higher the monthly debts, the more likely a borrower is to go delinquent on their new mortgage.

Spending half of your income on debt was often seen as a bad sign to lenders. FHA loans, however, allow it, with one of every four FHA loans between January and March 2018 having a DTI ratio of more than 50 percent. In 2013, it was about half that, with 12.7 percent of approved new FHA applications carrying such a high debt load. Another 30 percent had DTI ratios between 43 and 50 percent.

Why the shift?

The Urban Institute’s Housing Finance Policy Center has found that 5.2 million mortgages were “missing” between 2009 and 2014, meaning they would have been made if lenders had relaxed their strict underwriting standards after the recession.

FICO gave a few reasons for the drop in credit scores among new mortgages, starting with the fact that there are fewer refinances occurring now.

“Many high scoring consumers took advantage of the historically low mortgage rates observed in 2012-13 to refinance their mortgages,” FICO officials wrote. “Once the refinance boom ended in 2014, the volume shifted back to purchase mortgages, which tend to be a lower scoring population than the mortgage-experienced segment.”

Conventional mortgages still require a good credit score, with 41 percent of such home loans closing in August 2018 for borrowers with a credit score of 750-799, according to data from Ellie Mae, which processes 35 percent of U.S. mortgage applications.

FHA loans, however, are another story. Home loans insured by the FHA saw credit scores drop, from an average of 701 from January through March 2011 to 672 for the same period this year, according to FHA data.

FHA loans are typically the easiest types of mortgages to qualify for because they require a low down payment and credit scores as low as 500 are allowed.

Credit behaviors of mortgage borrowers

In its mortgage originations report, FICO looked at what mortgage borrowers did to change their credit score, whether for good or bad.

Of about 2.8 million people who opened mortgages between May and July 2017, 12 percent had a significant increase of 40 points or more to their credit score. Another 11 percent saw their score drop the same amount and the remaining 77 percent had a relatively stable score change of less than 40 points.

Its analysis found that people who raised their credit score mostly did it by reducing credit card balances by almost half. Those who saw their score drop added to their credit card balances by 97percent, or almost doubling their credit card debt.

Consumers with a decrease in their credit score were much more likely to have had a missed payment in the past year. Payment history accounts for 35 percent of total score calculation.

Credit score decreases also resulted from applying for new credit, with credit inquiries increasing 22 percent for those with a FICO score decrease. People with a credit score increase had their credit inquiries drop by 21 percent.

Opening several accounts in a short period of time is a greater risk of future missed payments, especially for people who don’t have a long credit history, according to FICO. New credit makes up about 10 percent of a FICO score.

The post Low Credit Score? You Can Still Get a Mortgage Loan appeared first on Better Credit Blog | Credit Help For Bad Credit.

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How Do I Increase My Home Value on a Budget?

August 17, 2019CreditBy toptierfinancial

You’ll come across a range of opportunities to increase your home value over the course of ownership. Whether it’s the peeling paint on your front door, the scratches in your hardwood flooring or a similar issue with your property, you likely have a few projects you’d like to start. Unfortunately, the money isn’t always there.

It’s natural to feel a little frustration when you can’t afford a much-needed renovation. It’s especially aggravating when you have to handle an urgent or obvious problem before you put your house on the market. Luckily enough, you don’t have to compromise your plans just because you’re low on cash.

When you take a strategic approach to your improvements, you can boost your property value without breaking the bank. So where should you start?

Paint Your Front Door

The front door is often the focal point of a home’s exterior. It’s one of the first things a buyer will notice when they look at your property. If your front door has seen better days, and you want to restore it to its former beauty, a fresh coat of paint is more than enough to do the job.

Best of all, painting or refinishing your door can cost as little as $20 if you’re resourceful. With a few hours of work and a bit of color coordination, you’ll make a marked difference in your home’s appearance. Just choose a bright, eye-catching shade and check the guidelines of your homeowner’s association if you belong to one.

Update Your Cabinetry

An attractive kitchen is a high priority for house-hunters. They’re searching for stainless steel appliances, neutral tones and beautiful cabinetry. These changes may fall outside your budget, and that’s fair, but you don’t have to invest in a full overhaul of your kitchen to increase your home value.

Replacing your existing cabinetry with something new and stylish could make all the difference in the world. You have no shortage of options, with dozens of different styles at a wide range of price points. A modification to your kitchen is one of the best home upgrades you can make, so evaluate your current setup and consider the value of a potential renovation.

Plant Honeysuckle

One or two small adjustments to your landscaping can make an enormous impact on a buyer’s opinion. Just like a freshly painted front door, the curb appeal of a well-manicured lawn can leave a lasting impression on a visitor. Of course, your lawn is only part of the equation, and your walkways deserve attention as well.

When you plant honeysuckle along the path leading up to your door, you’ll greet your guests with a sweet, heady aroma and the charming sight of hummingbirds. They’re attracted to the plant for its nectar, and you’ll enjoy more of them around your home with this low-cost addition to your garden.

Replace Your Outlet Covers

Light switch and outlet covers can age a home dramatically if they’re scratched or marked. If you’re planning an open house in the near future, you should seek out any tarnished covers and replace them as soon as possible. It’s an easy, inexpensive way to boost your home value.

You should also consider a dimmer switch if your electrical wiring can manage it. Whatever you choose to do, exercise caution around your outlets. Replacing a light switch or outlet cover is simple enough to handle on your own, but an actual electrical project will require the help of a professional.

Start Increasing Your Home Value

You don’t have to spend a substantial sum of money to increase your home value. As long as you follow the four suggestions above, you’ll stay well within your budget as you beautify your home. With that in mind, review your options and start planning your next project today!

Sticking to a budget is important, especially when you have little left over each month to save or put towards home improvements. A nonprofit credit counselor can review your budget with you and help you find ways to save money for the home improvements your heart desires!

Holly Welles, Real Estate Writer, The Estate Update

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