April 30, 2010 marks the end of an era. No, this may not be anything life changing, but in the real estate world we live in today, it is significant. April 30th is the last day a real estate purchase contract can be written so that the purchaser of that home can qualify for an $8,000 or $6,500 Federal income tax credit, but that's not all. This is HUGE! Here's why:
When we all witnessed the mortgage meltdown, the real estate industry was turned upside down. Agents and lenders alike saw their business fly out of site as quickly as a mobile home in an Oklahoma tornado! The following year and a half, we watched as the Federal government put together incentives to help support the industry. One by one, those incentives have dissipated until April 30th - the last one goes away.
NOW WHAT? You're not the only one asking this question. Investors on Wall Street are watching closely to see just how stable the market will be once the supports of the government are finally pulled away. At the end of March, the government ceased buying mortgage backed securities, which artificially kept mortgage interest rates at their lowest levels ever. Come April 30th, the Federal government will no longer pay a person to buy a home. Is this good for the market and for our economy? Only time will tell.
Since rates have begun to climb and the purchase incentives begin to fade, it will surely be interesting to see the market's reaction. In my opinion, we will continue to see interest slowly rise. Also, as the market stabilizes, it's only a matter of time that we see housing prices climb. After all, Arizona is STILL a very attractive place to live. Our market will begin to steadily grow, at the rate it SHOULD, not at artificially inflated rates we've seen in the past.
Bottom line: There is no better time than now to get your production in gear! March was better than April, but April, surely will be better than May, June or July! Time is flying by... "There's no better time than the present!"
Tuesday, April 20, 2010
Thursday, April 1, 2010
What's in a FICO Score?
The Fair Isaac Corporation, in developing their credit scoring model, took a look at credit reports generated over the years in hopes of quantifying consumers’ paying habits in order to predict the future likelihood of performing on their obligations. While nobody can predict the future, they were able to quantify many aspects of past reports to develop an algorithm that now is used by thousands of banks nationwide and millions of consumers alike. Be sure to call your lender should you have questions.
35% - Payment History
One part of a credit score we all understand is the value of making timely payments. There’s no doubt the largest predictor of future payment dependability is the past history of our paying habits. Whether it’s paying on a mortgage, automobile loan or a credit card, the heaviest weight of all is focused on this aspect. As long as payments are made on time, over a third of our score will remain on solid ground.
30% - Amounts Owed
This factor is a bit misunderstood. There is no perfect answer to the amount of credit you should carry, however, a more predictable factor that banks and credit reporting agencies watch closely is the amount of debt you carry IN RELATION TO you total available credit. What does this mean? Banks want to see how responsible you are in managing your credit. If you have been approved for a $5,000 credit limit with a credit card company, how much of that limit do you utilize and what is your history in handling that limit? If you ‘max out’ that credit card, that may be an indication that you are in trouble financially, on the other hand, if you only utilize 30% of that credit limit, it is an indicator that you are more responsible in handling your credit and, therefore, improve your credit score.
15% - Length of Credit History
There’s not a whole lot you can do to change this criteria. The premise behind factoring the length of history is that the longer your credit has been established, the more predictable your habits become. We are all creatures of habit and banks depend on our habits tremendously. A key factor in this, however is our ability to erase some of our credit history; good or bad! If we have a poor history on one account, it would behoove us to do what we can to eliminate that account from our credit file. On the other hand, if we have a good payment history on an account we’ve had for 10 years, we don’t want to close or pay off that account, thereby eliminating that account in our FICO score calculations.
10% - New Credit
New credit can immediately increase the credit score of a young person just now establishing their credit, or it can hinder someone with a 2 year history currently applying for a mortgage. How? Simply adding a three new accounts to an already shallow file may indicate the consumer is “credit happy” and warn the system of impending danger. Since there isn’t a lot of history to review, adding a new batch of liability puts uncertainty into the equation and may lower their score.
10% - Types of Credit Used
Not only do credit scoring models look at your payment history, amounts owed and new credit, but they ‘weigh’ the type of credit you have. For example, a mortgage falling 30 days past due carries a much higher negative burden than a 30 day late on a Sears card. Why? There’s a much higher indication that a consumer is in financial trouble if they let their mortgage go past due, than if they let a small revolving credit line become late.
We can manage our credit scores much more effectively if we know the source of the scoring models. Consider the above factors when trying to improve YOUR credit scores! If you have questions about how to improve your scores, call your lender and trust that you’ll be in good hands.
35% - Payment History
One part of a credit score we all understand is the value of making timely payments. There’s no doubt the largest predictor of future payment dependability is the past history of our paying habits. Whether it’s paying on a mortgage, automobile loan or a credit card, the heaviest weight of all is focused on this aspect. As long as payments are made on time, over a third of our score will remain on solid ground.
30% - Amounts Owed
This factor is a bit misunderstood. There is no perfect answer to the amount of credit you should carry, however, a more predictable factor that banks and credit reporting agencies watch closely is the amount of debt you carry IN RELATION TO you total available credit. What does this mean? Banks want to see how responsible you are in managing your credit. If you have been approved for a $5,000 credit limit with a credit card company, how much of that limit do you utilize and what is your history in handling that limit? If you ‘max out’ that credit card, that may be an indication that you are in trouble financially, on the other hand, if you only utilize 30% of that credit limit, it is an indicator that you are more responsible in handling your credit and, therefore, improve your credit score.
15% - Length of Credit History
There’s not a whole lot you can do to change this criteria. The premise behind factoring the length of history is that the longer your credit has been established, the more predictable your habits become. We are all creatures of habit and banks depend on our habits tremendously. A key factor in this, however is our ability to erase some of our credit history; good or bad! If we have a poor history on one account, it would behoove us to do what we can to eliminate that account from our credit file. On the other hand, if we have a good payment history on an account we’ve had for 10 years, we don’t want to close or pay off that account, thereby eliminating that account in our FICO score calculations.
10% - New Credit
New credit can immediately increase the credit score of a young person just now establishing their credit, or it can hinder someone with a 2 year history currently applying for a mortgage. How? Simply adding a three new accounts to an already shallow file may indicate the consumer is “credit happy” and warn the system of impending danger. Since there isn’t a lot of history to review, adding a new batch of liability puts uncertainty into the equation and may lower their score.
10% - Types of Credit Used
Not only do credit scoring models look at your payment history, amounts owed and new credit, but they ‘weigh’ the type of credit you have. For example, a mortgage falling 30 days past due carries a much higher negative burden than a 30 day late on a Sears card. Why? There’s a much higher indication that a consumer is in financial trouble if they let their mortgage go past due, than if they let a small revolving credit line become late.
We can manage our credit scores much more effectively if we know the source of the scoring models. Consider the above factors when trying to improve YOUR credit scores! If you have questions about how to improve your scores, call your lender and trust that you’ll be in good hands.
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