Hardy Plants for Your Fall Garden

When the days get shorter and other gardeners start abandoning their plots, don’t immediately pack in your hoe. Though most people think of fall as one long last-call for late summer crops and other warm-weather perennials, it can be plenty productive all on its own.

Just like with gardening in any other season, though, growing in fall has some special quirks.

You’ll have to select your edible and ornamental plants carefully (look for frost-resistant and quick-maturing varieties) and always keep one eye on the weather. Though most fall plants can take cooler temperatures and even a light frost in stride (especially if you take precautions like covering them at night), a serious freeze can still kill them for good. So before you start planting, know when the first frosts are expected in your region and do the math. Will your selected plants have enough time to mature?

To get you started here are a few plants and vegetables that have proven to work great in a fall garden.

mumsMums. It’s not really fall until you start seeing these guys popping up at garden centers and farm stands. While not all varieties of mums can withstand dropping temperatures, most marked “hardy” will stick around long enough to contribute some color (red, purple, yellow, orange, and more) to your flowerbeds.

Just make sure to keep their roots well-insulated with mulch.

Spinach (and other leafy vegetables). Spinach, cabbage, kale, and most varieties of lettuce actually prefer cooler temperatures and grow fairly fast—perfect for fall gardens. Just make sure to cover them at night if temperatures dip too low.

carrot-turnipCarrots (and radishes, turnips, and beets). Since these root vegetables grow underground, they have a little extra time to work with. They may need to be harvested when they’re still on the small side. but they’ll still taste good.

Broccoli and cauliflower. Both vegetables are hardy, and can even grow all winter in more temperate parts of the country. Protect them from early frost, and you can have fresh broccoli well into the fall.

Ornamental grasses. These may not be as flashy as some of the flowering plants we’ve talked about so far, but grasses like blue fescue, miscanthus, and feather reed grass can add some beautiful motion to your garden. On top of being hardy, many produce pretty plumes in the autumn.

Sedum-Autumn-JoySedum. Also known as “Autumn Joy,” this hardy plany flowers throughout late summer and fall and comes in all kinds of varieties and colors, from low-growing  to tall and pink to white. It’s also generally easy to care for, though deer unfortunately love it.

Goldenrod.  These plants, which bloom with clumps of fluffy yellow flowers in late summer and fall, need very little care. Because most varieties tend to be tall and fairly aggressive, you may want to keep it out of your beds, though. Try it around the outsides of your property.

How to Get Rid of Your PMI

Weibliche Hände schützen ein kleines EinfamilienhausPrivate mortgage insurance (PMI) can help you buy a home without a big down payment, but it’s expensive in the long run. An online PMI calculator reveals that a $300,000 house purchased with a $10,000 down payment can stick you with an extra $277 in PMI payments each month. That adds up quickly: in five years, you’ll have shelled out an extra $16,620.

Fortunately, there are ways to save on PMI costs. Before you buy your dream home, consider your PMI exit strategy to save big in the long run.

1. Avoid an FHA

The best way to avoid paying PMI is to make a 20 percent down payment on your home so that you don’t need it at all. Failing that, you should do your best to stay away from FHAs. Because they’re intended for riskier borrowers, you end up paying PMI for the life of the loan, regardless of how much equity you’ve built.

If you’re an otherwise well-qualified borrower looking for a low down payment option, take a look at a conventional loan. Recent changes over the last year have made it possible for borrowers to put as little as 3% down, and once you have built up enough equity (generally 22% of the loan) you can cancel the PMI.

2. Make Extra Mortgage Payments

By paying extra on your mortgage each month, you’ll be increasing your equity at a faster rate than if you just paid the minimum. Any extra payment you make goes directly to paying down your principal, and you’ll save by not owing additional interest on that portion of your mortgage. Once you owe less than 78-80% of the original value of your home, you can call your bank and request they cancel the PMI charges. The sooner you can pay down your debt, the sooner you can get rid of PMI payments.

3. Re-Financing Your Mortgage

Keep an eye on the housing market in your neighborhood and on mortgage rates from other lenders. If home values have gone up since you bought your house, you may have more equity than you think. Think of it this way: if your $300,000 home is now worth $400,000, you have an extra $100,000 in equity. If the amount you owe on your mortgage comes to under 80 percent of the new appraised value, you can refinance your mortgage to get a new loan with no PMI. Just make sure your new interest rate isn’t too high and you’ll come out ahead.

With a little planning and discipline, you can take advantage of these tips to reduce or even eliminate your PMI costs. The savings can be enormous, so it pays to crunch the numbers and get focused on the goal of kissing your PMI goodbye.

Current Mortgage Rates

mortgage ratesHere’s a true fact for you: when you write about mortgage rates every day, you will inevitably run into days where there is very little to say.  This is one of those days.  Overnight Treasuries rallied on the basis of another weak manufacturing report out of China.  The yield on 10-year Treasuries dipped as low as 2.12%, but has subsequently come back to the 2.16% range, which is pretty much where we were yesterday.  For all intents and purposes, mortgage rates have changed very little since Friday.  There is no particularly significant domestic economic data today, so the main influences on mortgage rates today will be the same as they have been all week – the potential need for bond market concessions as a result of corporate and government bond issuance.

Today’s economic data:

There are some bond auctions today, and not a whole lot else.  The 5-year auction this afternoon could Dennis Lockhart of the Atlanta Fed speaks this afternoon, but he also spoke on Monday and Tuesday, so I doubt anything new will come out of this speech.  Just so you know, his previous speeches this week have indicated that he is in favor of a rate hike before the end of the year.  I wrote about this at greater length yesterday.  I cannot bring myself to rehash it more today.

A little bit about China:

chinaWhy not?  There’s not much else to discuss.  Last night the preliminary reading on the Caixin Manufacturing Purchasing Manager’s Index for September (that’s a mouthful) fell to the lowest reading in 6 1/2 years.  The reading came in at 47 compared to expectations of 47.5.  This PMI measure has been in contractionary territory since February.  The Chinese economy has been the engine that has spurred global growth (or prevented an even worse recession) for some time now, and its slowing has contributed to recent global economic turmoil.  There is some speculation that the Chinese government will have to take more steps to stimulate growth to halt further declines.

This is all worth noting because in addition to impacting the day-to-day movement of the markets, it is clearly weighing on the Fed, who specifically     cited “recent global economic and financial developments” as one of the reasons they did not move to hike rates this month.  Slow growth in China leads to declines in commodity prices (among other things) and will have a disinflationary effect on the U.S. economy.  Inflation is already well below Fed targets, and if it falls further, we could see the Fed punt a rate hike into 2016.  I don’t think they will do this, but it’s in the realm of possibility.

Will the government shutdown (again)?:

dysfunctionWithout a budget deal, the government will shutdown on October 1st, which is fast approaching.  Right now the Senate is trying to pass a short-term spending bill that would fund the government through December 11.  But check this out (from today’s Washington Post):

“The measure will almost certainly fail when it comes up for a procedural vote on Thursday as Democrats are expected to object to both the defense funding increase and the effort to strip funds from the embattled women’s health organization. But the gambit is just the first in a set of delicate moves by Majority Leader Mitch McConnell (R-Ky.) aimed at averting an Oct. 1 shutdown.

Once the bill fails, GOP leaders are expected to immediately introduce a second spending bill funding the government at current spending levels through the same date, according to several senior Senate aides. That bill — which is being called a “clean continuing resolution” or “clean CR” because of its lack of policy riders — is expected to pass.”

And if you’re thinking to yourself, “hey, this is asinine, why not just propose the clean CR up front?” you’d be thinking correctly.  Somehow proposing a measure – that is bound to fail – is supposed to appease House Republicans who are hell-bent on defunding Planned Parenthood.  Maybe it allows them to score political points?  I don’t get it either.

In any case, our lawmakers have seven days to figure this out.

What about mortgage rates?:

 

Mortgage rates have been remarkably stable since the beginning of August, and barring something unforeseen happening*, I think they will stay around the current range until the Fed decides to raise rates, or strongly indicates that a rate increase is coming.  I believe that a rate hike is most likely at the December meeting – I think they are bent on raising rates before the end of the year.  Then again, I thought forever that they were going to hike in September, and that didn’t happen, so maybe take this with a grain of salt.

In any case, I could see a situation where the Fed signals that they are going to hike in December as early as the October FOMC meeting, which would cause rates to rise.  Whenever the expectation that a rate hike is coming sets into the market, we’ll see rates rise.  This will likely occur at some point before the Fed announces the actual hike.  And therein lies the rub – it’s tough to predict when that expectation will set in.  I’ve been beating the same drum for so long it’s worn out, but I believe that rates will be higher at the end of the year than they are now.  As a result, I would advise someone who is looking for a mortgage to try to act sooner rather than later.

*This really is the ultimate hedge for people making predictions.    

And now for something completely different:

A little fun fact I learned today: Japan’s financial markets are closed for the Autumn Equinox.  In Japan, Autumn Equinox Day is a public holiday.  It is now a secular holiday, which was a post-war change made to separate church and state.  Traditionally, it was a Shinto holiday called Kōreisai, which was a day to pay respect to past Emperors.  The Vernal Equinox is also a holiday in Japan.  As someone who is 100% in favor of more federal holidays, I’d like to see us adopt one or both of these holidays in the United States

Mortgage Rates Roundup

mortgage rates

Markets reacted to the Fed’s decision this week, causing mortgage rates to dip down.

Sean Becketti, chief economist at Freddie Mac, had this to say about the reaction mortgage rates had:

“Global growth concerns and lackluster inflation convinced the Fed to defer a hike in the Federal funds rate. In response, Treasury yields fell about 9 basis points over the week, with some larger day-to-day swings along the way. In response, the interest rate on 30-year fixed rate mortgages dropped by 5 basis points to 3.86 percent. Mortgage rates have remained below 4 percent for 9 consecutive weeks and have remained range-bound between 3.8 and 4.1 percent since May.”

This week at Total Mortgage, our 30-year fixed rate dropped 0.125 down to 3.625%; the 15-year fixed stayed the same at 2.875%; and the 5-year ARM went up 0.125 points to 3.625%. You can see in the tables below that all our rates are once again below the industry benchmarks.

Rate Hike Speculation

Since the Federal Reserve’s decision to keep interest rates at the current range of 0 percent to .25 percent was made last week, there has been much speculation as to when they will end up raising rates. Janet Yellen has stated that “all meetings are live”, meaning that rates could be raised at the October meeting, but I don’t think anyone seriously believes that will happen (Fed Fund futures says 11% chance).

Realistically, the only chance for action in 2016 will come in December, but in all likelihood that won’t happen either (Fed Fund futures says 35% chance), despite what FOMC chairJanet Yellen or Atlanta Fed President Dennis Lockhart thinks. There’s no knowing what exactly goes on inside the minds of the FOMC members, so for now I think we just have to sit back and look for signs of future action.

Current Mortgage Rates

Our Current Rates:

30-Year Fixed Rate 15-Year Fixed Rate 5-Year ARM
Rates 3.625% 2.875% 2.625%
Fees & Points 0.7 0.6 0.5
APR 3.682% 2.961% 2.982%

* Rates accurate as of 9/25/15. See below for assumptions

Industry Benchmarks:

Freddie Mac

30-Year Fixed Rate 15-Year Fixed Rate 5-Year ARM
Freddie Mac¹ 3.86% 3.08 2.91
Fees & Points 0.7 0.6 0.5

1. Source

Primary Mortgage Market Survey

Bankrate

30-Year Fixed Rate 15-Year Fixed Rate 5-Year ARM
Bankrate² 4.0% 3.18% 3.19%
Fees & Points 0.26 0.26 0.26

2. Source

Where are rates going?

Mortgage rates are proving to be on a bit of a roller-coaster ride these days. While they dipped down this week, there’s really no telling what they’ll do next week. The only thing I can somewhat confidently say is that I don’t expect them to rise or dip too far out of the 3-4.5% range.

What does this mean for me?

In a volatile market such as we’re seeing right now, it’s impossible to predict where rates will go. I think the best course of action is to look at your situation and the current rates and make a decision based on the facts in front of you, not what might happen down the road.

Rate Assumptions
Mortgage rates are volatile and are subject to change without notice. All rates shown are for 30-day rate locks for an owner-occupied primary residence unless otherwise noted.
Extended locks are available; prices will vary accordingly.
The APR for 30-year conventional fixed-rate mortgage loan amounts is calculated using a loan amount of $417,000, 0.7 points, a $495 application fee, $799 underwriting fee.*
The APR for 15- year conventional fixed-rate mortgage loan amounts is calculated using a loan amount of $417,000, 0.6 points, a $495 application fee, $799 underwriting fee. 15-year conventional mortgage rates are calculated with a 15-year loan term.*
The APR for adjustable rate mortgages (ARMs) is calculated using a loan amount of $417,000, 0.5 points, a $495 application fee, $799 underwriting fee. Some rates and fees may vary by state.*
Products are subject to availability on a state-by-state basis. All interest rates listed are for qualified applicants with 740 or higher FICO and 80 LTV over a 30-year loan term except where otherwise noted and are subject to mortgage approval with full documentation of income.

Can You Afford an Adjustable-Rate Mortgage?

mortgage-percentage

Points, down payment, annual percentage rate. Whether you have just figured out how much home you can afford or are trying to calculate whether a mortgage refinance makes sense for you, it’s important to understand the terms and what they mean for your mortgage options. Whichever mortgage you decide on has an impact on how much you will pay each month, how much you will pay overall, and how you need to handle your regular personal income and spending.

Fixed vs. adjustable rate

A variable- or adjustable-rate mortgage is a loan where the interest rate is subject to change according to market fluctuations and terms, whereas a fixed-rate mortgage offers flat payments throughout the term of the loan. It may be easier to qualify for an ARM because payments in the early years are more affordable. They can be more complicated as they are available in a variety of terms, but they enable buyers to account for future increases in income or improved economic environments. (You should know, for example, how long the initial rate lasts, how often the mortgage adjusts, and what the maximum adjustment is in your payment.) Here’s a quick guide to the differences between fixed-rate and adjustable-rate mortgages.

When it’s right for you

Variable-rate mortgages might be right for you if you can handle more risk and know you will likely have more money once the lower-rate term of the schedule ends. This type of mortgage may also be better for people who anticipate declining interest rates, plan to live in their current space for a limited time, or predict they can pay off the mortgage before a higher interest rate kicks in.

How to prepare

Before you get any kind of loan product, the first thing you should do is check your credit scores, since a difference of just a few points can mean shelling out thousands more in interest charges over the life of your loan. You can check your credit scores for free once a month on Credit.com, and you can pull your free annual credit reports on AnnualCreditReport.com from each of the major credit-reporting agencies.

Some advisers might say that it will be harder to plan when your monthly payments fluctuate. Interest rates are variable and generally increase over time, meaning your payments will likely get higher. You can use the money you save from your time with lower interest payments earlier in the mortgage to put toward the months of higher payments or hope that your income will rise as your rate does. Keep in mind that if property values rise, so will property taxes, so your taxes could increase your payment as well.

It’s important to study the (sometimes complex) terms of your loan and prepare accordingly. Don’t let yourself suffer payment shock or struggle to make payments, because you can study and understand market fluctuations to help you plan and set aside funds accordingly.

Once you know which mortgage type fits your personal situation, you can determine how much your monthly payments will be. Choosing the right option and budgeting accordingly can help ensure you make your repayment a priority while balancing your spending and saving needs and wants.

Any Benefit of Weekly Home Mortgage Payments?

weekly mortgage payments

Typical borrowers make their mortgage payments monthly. Some, however, make biweekly payments to reduce the term of their loans. Could weekly mortgage payments speed the payoff even further?

The answer in some cases is yes—but usually not much more than with biweekly plans.

Converting to any schedule that increases payment frequency reduces the principal loan amount faster, resulting in less interest owed and a shorter mortgage term, says Jack Guttentag, professor emeritus of finance at the Wharton School of the University of Pennsylvania. The biggest benefit of weekly payments, however, is not cost savings, but convenience for people who are paid weekly and like to handle bills accordingly, he adds.

Biweekly payments save money over the lifetime of a loan because the schedule results in the equivalent of 13 monthly payments instead of 12 over the course of a year, says Lynn Fisher, vice president of research and economics for the Mortgage Bankers Association (MBA). But paying weekly leads to no more savings than paying biweekly because 26 and 52 payments both add up to the same one extra month, or 13 mortgage payments, instead of 12, per year, she adds.

The first question to ask the lender is when the payment will be credited to the principal, says Mr. Guttentag, who offers tips on his Mortgage Professor website. Borrowers may assume that the weekly payment will be applied to the principal immediately when received, but most lenders apply all payments on the same monthly schedule even if a borrower makes more frequent payments, he adds.

Even if lenders credit the payment when it’s received, the weekly payment schedule doesn’t offer significant savings compared with a biweekly schedule.

For example, take a 30-year, fixed-rate $500,000 mortgage. At an interest rate of 4.18%, the monthly payment would be $2,439.26. A weekly payment would be one-fourth, or $609.82.

If the $609.82 payment is credited when received, a borrower would save about $63,000 in interest, Mr. Guttentag says. A biweekly payment applied when received would save $61,091.57, a difference about $2,000, he adds.

If the lender credits all payments monthly, a weekly or biweekly payment would yield the same amount of savings ($58,170.43), and a 30-year mortgage would be paid off in 26 years, according to a calculator on the Mortgage Professor website.

Lender fees imposed when borrowers formally switch to a weekly or biweekly schedule may also reduce savings, says John Walsh, president of Milford, Conn.-based Total Mortgage Services, which lends in 34 states. Several big lenders, such as Citibank, US Bank and TD Bank, have done away with biweekly payment plans in recent years, he adds.

Borrowers can just as easily, and usually without any fees, make weekly or any payments more frequent than monthly themselves, Mr. Guttentag says. If discipline is needed, they may want to schedule automatic payments or set up a dedicated bank account, he adds.

Or, because the goal is to effectively make 13 payments instead of 12, another option is to divide the monthly payment amount by 12 months and add that extra amount to the principal on each monthly payment, Mr. Guttentag says.

Before switching to any more frequent payment plan, however, borrowers always should consider their full financial picture and what else could be done with the money, says Mike Chadwick, president of Unionville, Conn.-based Chadwick Financial Advisors. Jumbo borrowers, with loan amounts above $417,000 in most parts of the country and $625,500 in high-priced areas, have enjoyed low interest rates of about 4% for the past few years. They may reap a greater return by maintaining monthly payments and instead putting that money into investments with higher returns, he says.

“For most people, it’s more of a psychological decision than a financial decision to pay off the mortgage,” Mr. Chadwick says. The benefits of a weekly or any more frequent payment plan, however, could increase as interest rates rise, especially if stock market yields decline, he adds.

Here are a few more options when deciding whether to switch to more frequent mortgage payments:

• Prepayment penalties. Post-mortgage bust regulations have made these a rarity, but borrowers still should check with lenders to make sure, says Peter Grabel, managing director of Stamford, Conn.-based Luxury Mortgage Corp.

• Variable income. Formal payment plans may not work well for someone with seasonal or fluctuating income or an annual bonus, Mr. Grabel says.

• Tax savings. Borrowers may also want to consider that up to $1 million of annual interest on mortgage debt is tax-deductible, says Eric L. Green, a partner at Stamford, Conn.-based Green and Sklarz LLC, a law firm that specializes in tax matters.

For this reason, borrowers should prioritize paying off non-tax-deductible debt, such as credit cards and student loans, he adds.

Struggling With Your Mortgage? 7 Programs Can Help

money life-preserver

Buying a home and getting a mortgage: We all know these are big decisions that will affect our future tremendously—financially and beyond. No one knows this better than people struggling to make mortgage payments.

If you find yourself in this position, there are some government programs that can help you refinance to a new mortgage that makes more sense for you or walk away with minimal credit damage. Check out some of the mortgage refinance programs the Federal Housing Administration and Making Home Affordable Program have available below.

1. HARP

The Home Affordable Refinance Program allows certain homeowners to refinance even if they are underwater on their mortgage, meaning they owe more than their home is worth. To qualify, your current loan-to-value ratio must be greater than 80%, but for Fannie Mae and Freddie Mac mortgage owners current on their payments, this means lower housing costs and greater peace of mind. To apply, you will need mortgage statements and income details such as a pay stub or income tax return. Contact your mortgage company and see if it is an approved HARP lender, or go straight to a HARP lender and say you are interested in refinancing. See if you qualify for HARP here. This program is set to expire at the end of 2016.

2. HAMP

The Home Affordable Modification Program is for homeowners whose financial circumstances have worsened since purchasing their home. As with HARP, you must have a Fannie Mae or Freddie Mac mortgage, but HAMP is more of a modification to your current loan to avoid foreclosure. You can owe up to $729,750 on your primary residence to qualify and should contact your mortgage servicer to submit your application. HAMP is also set to expire on Dec. 31, 2016.

3. HAFA

The Home Affordable Foreclosure Alternatives is for those who can’t afford their mortgage payment and must transition out of homeownership. It leaves the option of a short sale, where you sell your house for an amount less than what you owe and the lender absorbs the difference, or a deed-in-lieu of foreclosure, where you give your title back to the mortgage company to avoid foreclosing. HAFA mortgage limits are also $729,750, and your mortgage must have originated on or before Jan. 1, 2009.

4. HHF

The Hardest Hit Fund helps families who are facing foreclosure stay in their homes in the states that were especially hurt by the housing crisis and other concentrated economic distresses. Essentially, this program gave money to housing finance agencies in Nevada, Michigan, California, Florida, Arizona, and 13 other states plus the District of Columbia to help those with declining home values who are delinquent on mortgages. State HHFs have until 2017 to use the $7.6 billion that has been allocated for this program.

5. PRA

The Principal Reduction Alternative program works with HAMP to encourage mortgage servicers and investors to reduce the amount of principal on mortgages not backed by the government. You must owe more than your home is worth and have a mortgage payment greater than 31% of your gross (pretax) monthly income to qualify. You must prove you are facing a financial hardship or are in danger of falling behind on payments and prove you have sufficient, documented income to make the modified payment. More than 100 servicers participate in this government-backed program for principal reduction. Keep in mind that these servicers are required to have written standards for PRA applications. The limit for this program is also $729,750, and you must have obtained your mortgage in or before 2009.

6. 2MP

The Second Lien Modification Program also works in tandem with HAMP for homeowners struggling to make mortgage payments due to a HAMP modification, equity loan, home equity line of credit (you can learn more about HELOCs here), or some other type of lien. This can be given in the form of a modification or principal reduction on your second mortgage. You must not have missed three consecutive monthly payments on your current HAMP modification.

7. UP

The Home Affordable Unemployment Program is a supplemental plan to HAMP for those who are unemployed and need a mortgage payment reduction. The government can reduce your payments to 31% of your income or even suspend them for 12 months or longer, depending on your need. You must be eligible for unemployment benefits, have no previous HAMP modification, owe no more than $729,750 on your home, and have a mortgage obtained in or before 2009 to qualify for this program. It’s important to have your full-file credit report ready and contact your mortgage servicer to see if you are eligible. You can get your free annual credit reports from AnnualCreditReport.com, and if you want to check your credit more often, you can get a free credit report summary every month on Credit.com. You will be evaluated for a HAMP refinance at the end of your UP forbearance period if it is available once that time comes. Fannie Mae and Freddie Mac mortgages currently do not have an unemployment program available.

No matter what your specific situation and how desperate you feel, it is a good idea to take the time to look into government programs and see if there is one that will meet your needs.

Homeowners Insurance Can Cost You Twice as Much With Bad Credit

House under umbrella

You’re probably already aware that credit scores are a major factor when you’re buying a home, because your credit score affects the interest rate you get on your mortgage. Considering how big home loans are, a few credit score points could translate into a slightly higher rate, which ultimately can add up to thousands of dollars in interest over the life of the loan.

Of course, there are many more expenses that come with buying a house than taking out a mortgage. Pretty much everyone takes out homeowners insurance, which can—on average—tack on nearly $100 or so to your monthly homeownership expenses. On top of that, you could be paying higher insurance premiums just because you don’t have a good credit score (here’s an explanation of what qualifies as a “good” credit score).

Across the U.S., homeowners might pay 32% more in annual homeowners insurance premiums if they have fair credit, as opposed to excellent credit, according to a survey from InsuranceQuotes.com.

If you have poor credit, your homeowners insurance can cost twice as much as it would if you had excellent credit. Most states allow insurance underwriters to consider credit history when determining home insurance premiums, though California, Maryland, and Massachusetts do not. In 38 states, plus Washington, DC, people with poor credit pay, on average, twice as much for homeowners insurance as they would if they had excellent credit.

“It’s hard to fathom that bad credit would justify such steep rates on homeowners insurance, but it often is a factor and clearly can be an important one,” said Gerri Detweiler, Credit.com’s director of consumer education. “When I bought my current home a number of years ago, I was told I didn’t get the largest discount for my homeowners insurance due to my credit score, even though I had very little debt and a clean payment history. So I can relate to homeowners who are really frustrated by this practice.”

Insurance underwriters generally use credit-based insurance scores, according to the report from InsuranceQuotes.com, and those scores are based on credit report data such as outstanding debt, length of credit history, late payments, collection accounts, bankruptcy, and credit applications.

There are many expenses that come with being a homeowner, so anything you can do to keep the costs down will likely add up to a lot of savings in the long run. If you didn’t get the lowest rates, consider asking your insurer to reassess your premium after you’ve had time to improve your credit after buying a home. You could also shop around for a new policy as a money-saving tactic, because underwriting practices vary by insurer. To keep tabs on your credit and prepare your score for the test of homeownership, you can get your free credit scores every 30 days on Credit.com.

Does an FHA Loan Limit Your Home-Buying Options?

fha-loan-options

In many housing markets, there is more demand than supply, which can create intense competition. Let’s say you’re pre-approved for an FHA loan and find a home you like, but your competition comes to the table with cash—here’s what you need to know.

Stigma tied to FHA loans

FHA loans unfortunately have a stigma that they are problematic and harder to obtain, due to their credit standards and property conditions for appraisals.

If we rewind the clock a few years, many listings on the market were short sales, foreclosures, and distressed properties. Buyers working with FHA loans typically had problems, because the FHA is very particular about a property being acceptable to meet health and safety concerns. However, in general, the types of properties on the market today are far different from the homes on the market just a few years ago. In other words, today’s listings tend more to have equity and meet appraisal standards.

Still, there’s a misconception that buyers working with FHA loans are not as strong on paper, due to having only 3.5% down, and the possible likelihood of buyers falling out of escrow because they cannot qualify. This can be taken care of upfront by making sure you are properly pre-approved with the loan application, credit report and giving the lender with whom you’re working full authority to review your financials to make sure you are bulletproof.

Furthermore, a good loan officer will call the listing agent (with your buyer’s agent’s permission) to let him or her know how qualified you are and ease any concerns about your qualifying integrity.

But let’s have a look at the competition you may face, and how to improve your odds. Many of these scenarios can also apply even if you have a conventional loan, so keep reading.

All-cash offers

No matter what, there’s a chance you will lose out on a particular home you’d like to purchase, because of someone making an all-cash offer that is more attractive than yours. This type of offer is considered the cream of the crop, as there’s no financing contingency and usually no appraisal contingency, which mean a quick, easy close for the seller.

However, an all-cash buyer may also try to make a lowball offer. If your real estate agent tells you there’s interest from an all-cash buyer, don’t let that be a deterrent. I’ve seen many situations where all-cash buyers are looking to get a deal. Just remember that all-cash buyers do not necessarily get preferential treatment, especially if they’re making a lower-priced offer on a home for which the seller’s motivation is to get the highest and best offer.

Loans with big down payments

Generally, a buyer with a conventional loan with 20% down looks stronger on paper than a buyer with less than 20% down. This usually means the buyer might be able to perform more easily, which can be appealing to a seller. While this might not always be the case, the general consensus among real estate professionals is that a loan with a bigger down payment is better. If you are working with less skin in the game, a higher offer from you—if it’s within your budget—may offset an offer from a buyer who has more money down.

Big bank accounts

If you can produce a bank statement showing you have additional funds in the bank, this can go a long way when negotiating a real estate deal independent of your down payment. A large cash balance in the bank is appealing to a seller, even if you’re taking out financing to buy a home. Perhaps it’s more advantageous for you to take out financing considering the tax benefits than it is for you to pay all cash for a home. There can be many reasons for your using financing to buy a home rather than cash. Even if you do not plan to use all cash, showing proof of funds to close makes a strong statement to a seller you are serious.

Seller motivation

When sellers list their home they consider the following:

  • Price
  • Speed
  • Flexibility

 

If you can match the seller’s expectations on all three of these, or even two out of the three, you increase your chances of getting your offer accepted. While price is important, speed may be more important, for example, if the seller is closing on a replacement property of his own, has a separate escrow, and is limited by a contractual timeline. Ultimately, cash and price go hand in hand. A reputable buyer’s agent and loan officer working in tandem can help convey your strength as a buyer to the listing agent and ultimately to the seller, to help get you in contract sooner rather than later.

Having good credit can also help position you as a strong buyer. If your credit isn’t all that strong, it doesn’t necessarily keep you from qualifying for a loan, but it can get you access to better interest rates, which can give you more buying power. If your timeline allows it, building your credit before you buy a home can be beneficial. If you’re just starting out, you can get an idea of where you stand by getting your credit reports and scores. You can get your free annual credit reports on AnnualCreditReport.com, and several resources offer free credit scores, including Credit.com.

Will Getting Pre-Approved for a Mortgage Hurt My Credit?

credit-report-score

Shopping for a home loan means getting your credit pulled. There’s no way around it.

Without taking a look at your credit report, most lenders won’t be able to complete your pre-qualification, much less pre-approve you to purchase a home.

Granting lenders permission to pull your scores—yes, they need your permission—constitutes what’s known as a “hard inquiry.” To be sure, a hard inquiry can ding your credit.

But if there is a hit, it’s typically just a handful of points. Hard inquiries on your credit can be a troublesome sign. But the major credit bureaus also see the value of comparison shopping—and that’s why they cut home buyers some slack.

Let’s take a closer look at how shopping around for a mortgage will affect your credit and the smartest ways to limit the impact.

Hard vs. soft inquiries

Your credit report isn’t just a measure of your financial health. It’s also a powerful identity verification tool, which is in part why employers and insurance providers might also want a peek.

For consumers, that means the reason behind the inquiry plays a role. There are always exceptions, but the big difference between hard and soft inquiries generally lies in their potential to result in new debt obligations.

Hard inquiries can include:

  • Mortgage applications
  • Auto financing
  • Credit cards
  • Retail credit accounts

 

Soft inquiries can include:

  • Checking your own credit. You can get your free annual credit reports from AnnualCreditReport.com without dinging your credit, for example. And you can check your credit scores for free on Credit.com without a hard inquiry as well.
  • Services that check and monitor your credit (Be careful: Paid credit repair services generally don’t fall under this category and can be detrimental to your credit scores.)
  • Insurance providers
  • Employers

 

Other types of inquiries toe the line between the two. To be safe, you should ask about what type of credit inquiry will be made if you’re thinking about:

  • Signing a mobile phone contract
  • Setting up cable, Internet, or utility service
  • Opening a bank account
  • Increasing an existing line of credit

 

Creditors want to look at your hard inquiries, and for good reason: Every new debt takes a bite out of your monthly budget. If it looks like you’re making sudden, desperate attempts to borrow money, this can raise a red flag for creditors who may be worried about your ability to repay the credit they extend to you.

But don’t panic: Seeking loan pre-approval from multiple mortgage lenders isn’t going to kill your scores.

How mortgage pre-approval & hard inquiries work

Normally, a hard inquiry is a hard inquiry. Where things can change is if you’re rate shopping among multiple mortgage lenders.

First, it’s important to understand that pre-approval isn’t a binding step. You can work toward a pre-approval letter from as many lenders as you like.

Second, the credit bureaus have come to expect rate shopping. Rather than count every mortgage credit pull against you, most scoring formulas treat all of these hard inquiries within a certain time period as one, big credit pull.

The time frame varies depending on the scoring firm. For example, the newest FICO scoring models consider all inquiries within a 45-day window as a single hard credit pull. The older versions of the FICO scores work off a 14-day span, so ask the lender what scoring model it’ll be using.

That gives consumers a solid period of time to work toward pre-approval among multiple lenders. You’ll get a good look at their rates, terms, and estimated closing costs without worrying about your credit score taking a nosedive.

Also, FICO scores will ignore any hard mortgage inquiries in the 30 days preceding your scoring, so if you go to a second lender a week after getting pre-approved by the first, your hard inquiry from the first lender won’t be factored into your scores already.

Don’t let the fear of losing a couple of points from an inquiry keep you from starting the mortgage-shopping process. You can always have a chat with a mortgage lender about affordability and loan terms without having a hard inquiry, especially if you’ve checked your credit scores recently and know where you stand. Just keep in mind that different lenders use different credit scoring models to get you approved, so their estimates will be just that—estimates—until you ask for a hard inquiry to be done. The key to minimizing the impact of hard credit inquiries is to understand what they are and how they can affect you. Information is your best protection.