Author: Regan Hagestad

A mortgage likely is the largest debt you’ll ever have, so paying it off is a significant achievement. But be warned: Depending on various factors, this act of financial responsibility could increase or decrease your credit score. Here, realtor.com explains how it could affect your FICO score.   Your credit score could decrease Paying off what is likely your largest installment debt might not increase your credit score. If you don’t have a balanced mix of revolving to installment debt—and a good length of time that credit has been established and is still open—your score may dip slightly. If your mortgage was the only loan in the installment category, there could be a minor negative impact because the overall credit mix of your credit picture accounts for 10 percent of your score. And credit type isn’t the only category that could negatively affect your score. Your score also may see a modest drop when the loan is paid off because it takes the mortgage off of the length of credit portion of your score, which accounts for 15 percent of your score. So, if your mortgage is your only installment loan, it may be better for your credit score in the long run if you keep your installment loan open for its full term while continuing to make regular, timely payments.   Your credit score could increase Paying off your mortgage also could boost your credit score. If you have other debt that you’re paying on every month and showing creditors that you are a responsible borrower, paying off your mortgage may show as a positive because your debt-to-income ratio may be higher. There also is a basic credit advantage to paying off such a large amount. Generally, borrowers who have less debt already outstanding are considered to be better credit risks. No longer having to make a payment also will improve your net monthly cash flow, increasing capacity to make new payments. For example, whenever you apply for a loan, creditors want to know how much debt you already have. Removing a mortgage significantly reduces your total debt amount, which can make you more attractive to creditors.   Before you pay off your mortgage Before making any big financial moves, find out what’s involved in paying off your mortgage. Clarify with your lender if there are any prepayment penalties. Also, make sure you have a savings cushion before paying more on your mortgage. It’s important to save those would-be extra mortgage payments for emergencies, even if it means avoiding a year or two of interest payments.

Whether you’re a freelancer, temp worker or independent contractor, they’re all the same term for a job that feeds the gig economy.  The upside? Instead of working full-time for only one employer, you have the flexibility, freedom and personal fulfillment to work when you want.  There’s a downside to this freedom — your income could be “riskier” if you want to get a loan, especially when it comes to getting a mortgage. Bankrate offers some tips on how to apply for a mortgage as a gig economy worker. 1. Check your credit To make sure nothing is amiss, go to annualcreditreport.com, order your three free credit reports and alert the credit rating agency immediately if there are any issues. The higher your credit score, the more likely it is that a lender will provide you with money for a home.  2. Share at least two years of tax returns This is unique to those in the gig economy. Understandably, you look riskier to a lender when you offer up 1099s instead of W-2s. Your lender wants to be sure your income will stay consistent in the future and that you can make your mortgage payments. 3. Save as much money as you can If you want to avoid private mortgage insurance (PMI) it’s in your best interest to save at least 20 percent of the purchase price of the home. PMI is insurance that protects your lender in case you default on your mortgage. Premiums usually are paid monthly and vary from a fraction of a percent to as much as 1.5 percent of the value of your loan. If you want to prove your mettle as a reliable borrower, save even more than 20 percent. 4. Get pre-approved Pre-approval could be even more important if you’re a freelancer. It’s a guarantee from your lender that you’re eligible to borrow a certain amount of money at a certain interest rate. Know what forms you need, including W-2s, 1099s, bank statements, 1040 tax returns, etc. 5. Be aware of how deductions are viewed If you claim a lot of deductions to reduce your taxable income (such as deductions on work supplies, etc.), lenders could view it as a disadvantage. 6. Know your debt-to-income ratio (DTI) Your DTI measures the relationship between your debts and income. Fannie Mae requires a DTI at or below 50 percent. To find your DTI, simply add up your monthly bills, including student loans, alimony, child support, monthly rent, etc. Divide the total by gross monthly income, or income before taxes. 7. If you don’t qualify for a conventional loan, look into government-backed loans These loans have varying income level and credit score requirements, and they could be your best option if you find yourself cash-strapped or have a low credit score. They include: • FHA loans, which are issued by banks and other lenders and insured by the Federal Housing Administration. You can qualify for an FHA loan with a credit score as low as 500 with 10 percent down. To get the maximum financing, you need a credit score of 580 or higher and 3.5 percent down. • VA loans, which are partially insured by the Department of Veterans Affairs. Regular military, veterans, reservists and National Guard are all eligible to apply. Qualified spouses may also apply. The main perk to VA loans is their no-down payment and low credit score requirements.  • USDA loans are zero-down-payment mortgages that require low-to-moderate income, and the property location also must fit the bill. You must also have an appropriate DTI to qualify. 8. Consider an NQM A non-qualified mortgage (NQM) is a loan that doesn’t meet the standards of a qualified mortgage. The difference between the two includes whether a government agency protects the lender if any type of lawsuit is filed against them. NQMs are often an option for those who can’t prove their income through traditional means.  Typically, those who take on an NQM are self-employed; have a high debt ratio, and have less-than-perfect credit. The catch? You need to have a large down payment and higher credit scores in to qualify for an NQM. Lenders can also charge you a higher interest rate and fees.  9. The bottom line One trick that could help is to think like your lender. If you’re a member of the gig economy, think about what a lender sees. If you need to increase your credit score, for example, that could help you, particularly if you’re after a conventional loan.  Some small steps you can take to help increase your score include paying your balances on time; avoiding new lines of credit; and using less of the available credit you have.

Thinking about buying your first home? Here, realtor.com lays out all of the must-know details of purchasing for the first time, whether it’s getting a mortgage, choosing a real estate agent, shopping for a home or making a down payment. 1. How much home you can afford   Because homes are a large expenditure, you’ll likely need a home loan (or mortgage), along with a large down payment. Before that, however, you’ll need to know what price you can really afford to pay for a home. That depends on your income and other variables, so enter your information into a home affordability calculator like the one at https://www.realtor.com/mortgage/tools/affordability-calculator/ to get a ballpark figure of the type of loan you will be able to manage. Experts typically recommend that your house payment (which will include your mortgage, maintenance and taxes) shouldn’t exceed 28 percent of your gross monthly income. For example, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your mortgage. For a more accurate assessment, visit your lender to get pre-approved for a mortgage, which means your credit history, credit score and other factors will be assessed to determine whether you qualify for a loan, and if so, for how much. Mortgage pre-approval also puts home sellers at ease, since they know you have the cash for a loan to back up your offer. 2. Choose the right real estate agent   While you buy most things yourself, purchasing a home is not so easy. It requires transfer of a deed, title search and plenty of additional paperwork. Plus, there’s the home itself—it may look great to you, but what if there’s a termite problem inside those walls or a nuclear waste plant being built down the block? There’s also a lot of money involved in for the of a down payment, loan, etc. So, before you make a massive payment, you will want to have a trusted real estate agent by your side to explain the entire process. Make sure to find an agent familiar with the area where you’re planning on purchasing because the agent will have a better idea of proper expectations and realistic prices. Also make sure to interview at least a couple of agents, because once you commit you will sign a contract barring you from working with other buyer’s agents. 3. Know there is no such thing as a perfect home   You’ve likely dreamed about the ideal house and don’t want to settle for anything less. But understand that real estate is about compromise. As a general rule, most buyers prioritize three main things: price, size and location. Realistically, however, you can expect to achieve only two of those three things. So you may get a great deal on a huge house, but it might not be in the best neighborhood. Or you may find a nice-sized house in a great neighborhood, but your down payment is a bit higher than you expected. These types of trade-offs are par for the course, so find something you can live with, grow into and renovate to your taste. 4. Do your homework   Once you find a home you love and make an offer that’s accepted, you may want to move in right away. But don’t purchase a home or make any payments without doing your due diligence, and add some contingencies to your contract that will give you the right to back out of the deal if something goes wrong. The most common contract contingency is the home inspection, which allows you to request a resolution for issues (such as a weak foundation or leaky roof) found by a professional. Another important first-time home buyer addition is a financing contingency, which gives you the right to back out if the bank doesn’t approve your loan. If they believe you’ll have trouble making a payment, a mortgage lender will not approve your loan. A pre-approval makes the possibility of having your loan application rejected much less likely, but a pre-approval is also not a guarantee that it’ll go through. You also might want to consider an appraisal contingency, which allows you to back out if the entity giving you a loan values the home at less than what you offered. This will mean you will have to come up with money from your own pocket to make up the difference. 5. Know your tax credit options   The first-time home buyer tax credit may have gone by the wayside, but there are other tax breaks of which new homeowners might not be aware. For example, the mortgage interest deduction is a boon for brand-new mortgages that are typically interest-heavy.  If you purchased discount points for your mortgage, essentially pre-paying your interest, these also are deductible. Some states and municipalities may offer mortgage credit certification, which allows first-time home buyers to claim a tax credit for some of the mortgage interest paid. Check with your Realtor and local government to see if this credit applies to you.

You’ve found the house you love, put in a good offer and it was accepted. If you’ve applied for a mortgage, the next step is to undergo a comprehensive appraisal of its worth. And be warned: An unfavorable home appraisal can squash a real estate deal. Here, realtor.com offers insight into how the home appraisal process works.   Appraisals estimate a home’s value with fresh eyes You and the sellers might have agreed on a price, but that doesn’t mean it’s a done deal. You’ll need a home appraisal to obtain a mortgage because the home serves as collateral for your lender. If for some reason you are unable to make your mortgage payments, the lender will have to foreclose on your home and sell the property to recoup its costs. So, your mortgage lender will have to know the value of your home before handing over any funds. While the home appraisal process is somewhat similar to getting comps—as you did to determine a fair price—the appraiser delves in deeper to determine the home’s exact value. An appraiser will investigate the condition, square footage, location, and any additions or renovations. From there, the home will be appraised to determine its value. The appraiser also might evaluate the current real estate market in the neighborhood to help determine the value of the property. The lender or financing organization usually will hire the appraiser. Because it’s in the best interest of the lender to get a good home appraisal, the lender will have a list of reputable pros to appraise the home. Whoever takes out the mortgage pays for the home appraisal, unless the contract specifies otherwise. Then the buyer pays the fee in the closing costs. If a seller is motivated, he may pay for the home appraisal himself to back his asking price, which benefits the buyer by reducing closing costs.   You’ll get a copy of the home appraisal, too An appraiser sets out to determine if the home is actually worth what you’re planning to pay. You might be surprised by how little time that takes, with the appraiser likely entering and exiting the home in 30 minutes. An appraiser doesn’t have the same job as a home inspector, who examines every little detail.  While they’ll pay particular attention to problems with the foundation and roof, the home appraisal process includes noting the quality and condition of the appliances, plumbing, flooring, and electrical system. With data in hand, they make their final assessment and give their report to the lender. The mortgage company is then required by law to give a copy of the appraisal to you.   Appraisers work for your lender—not you As the buyer, you’ll be paying for the home appraisal. In most cases, the fee is wrapped into your closing costs and will cost around $300 to $400. However, just because you pay doesn’t mean you’re the client. The client is the lender rather than the buyer, which ensures that appraisers remain ethical. In fact, it’s a crime to coerce or put any pressure on an appraiser to hit a certain value. Appraisers must remain independent.   Appraisers protect buyers from a bad deal The home appraisal process is meant to protect you (and the lender) from a bad purchase. For example, it’s usually fine if the appraisal comes in higher than your asking price. Of course, the sellers could decide they want more money and would rather put their home back on the market, but in most cases, the deal will go through as expected. If your appraisal comes in lower than what you offered, this is where things get tricky: Your lender won’t offer more money than the appraised price. So, if you and the sellers agree on $125,000 but the appraisal comes in at $105,000, it creates a $20,000 shortfall.   A curveball appraisal isn’t necessarily the end If your appraisal comes in low and your contract with the seller was contingent on an appraisal, you could walk away and have your earnest money returned. If you prefer to buy the home anyway (or waived your appraisal contingency), there are some other paths you can pursue: Come up with the cash to cover the difference between the appraisal and offer price. Ask the seller to cover the difference. Challenge the appraisal, and pay for a second opinion. Keep in mind, though, that your new report could come out identical. Also know that if you do choose to walk away, that’s actually good news because the appraisal kept you from paying too much for your home.

Hoping to buy a home? One number you’ll want to get to know well is your credit score. Also called a credit rating or FICO score (named after the company that created it, the Fair Isaac Corporation), this three-digit number is a numerical representation of your credit report that outlines your history of paying off debts. Why does your credit score matter? Because when you apply for a mortgage to buy a home, lenders want some reassurance a borrower will repay them later. One way they assess this is to check your creditworthiness by scrutinizing your credit report and score carefully. A high FICO rating proves you have reliably paid off past debts, whether they’re from a credit card or college loan. (Insurance companies also use more targeted, industry-specific FICO credit scores to gauge whom they should insure.) Here, realtor.com tells you what type of score is best to buy a house.   Inside your credit score A credit score can range from 300 to 850, with 850 being a perfect credit score. While each creditor might have subtle differences in what they deem a good or great score, in general an excellent credit score is anything from 750 to 850. A good credit score is from 700 to 749; a fair credit score, 650 to 699. A credit score lower than 650 is regarded as poor, meaning your credit history has had some difficulties. Although FICO score requirements will vary among lenders, generally a good or excellent credit score means you’ll have little trouble if you hope to obtain a home loan. Lenders will want the business of home buyers with good credit, and may try to entice them to sign on with them by offering loans with the lowest interest rates. Since a lower credit score means a borrower has had some late payments or other dings on their credit report, a lender may see this consumer as more likely to default on their home loan. All that said, a low credit score doesn’t necessarily mean you can’t score a loan, but it may be tough. They may still give you a mortgage, but it may be a subprime loan with a higher interest rate.   How your score is calculated Credit scores are calculated by three major U.S. credit bureaus: Experian, Equifax, and TransUnion. All three credit-reporting agency scores should be similar, although each pulls from slightly different sources. For example, Experian looks at rent payments, while TransUnion checks your employment history. These reports are extremely detailed—for instance, if you paid a car loan bill late five years ago, an Experian report can pinpoint the exact month that happened. By and large, here are the main variables that the credit bureaus use to determine a consumer credit score, and to what degree: Payment history (35 percent): This is whether you’ve made debt payments on time. If you’ve never missed a payment, a 30-day delinquency can cause as much as a 90- to 110-point drop in your score. Debt-to-credit utilization (30 percent): This is how much debt a consumer has accumulated on their credit card accounts, divided by the credit limit on the sum of those accounts. Ratios above 30 percent work against you, so if you have a total credit limit of $5,000 you’ll want to be in debt no more than $1,500 when you apply for a home loan. Length of credit history (15 percent): It’s beneficial for a consumer to have a track record of being a responsible credit user. A longer payment history boosts your score. Those without a long enough credit history to build a good score can consider alternate credit-scoring methods such as the VantageScore. VantageScore can reportedly establish a credit score in as little as one month; whereas FICO requires about six months of credit history. Credit mix (10 percent): Your credit score rises if you have a significant combination of different types of credit card accounts, such as credit cards, retail store credit cards, installment loans and a previous or current home loan. New credit accounts (10 percent): Research shows that opening several new credit card accounts within a short period of time represents greater risk to the lender, according to myFICO, so avoid applying for new credit cards if you’re about to purchase a home. Also, each time you open a new credit line, the average length of your credit history decreases (further hurting your credit score).   How to check your credit score Now that you know exactly what’s considered a good credit rating, you can find out your own credit score by getting a free credit score online at CreditKarma.com. You also can check with your credit card company, since some (like Discover and Capital One) offer a free credit score as well as credit reports so you can conduct your own credit check. Another way to check what’s on your credit report—including credit problems that are dragging down your credit score—is to get your free copy at AnnualCreditReport.com. Each credit-reporting agency (Experian, Equifax, and TransUnion) also may provide credit reports and scores, but these may often entail a fee. Plus, you should know that a credit report or score from any one of these bureaus may be detailed, but may not be considered as complete as those by FICO, since FICO compiles data from all three credit bureaus in one comprehensive credit report.

Buying a house is exciting, but the home loan process sometimes can be a bit daunting. Here, realtor.com offers some expert mortgage advice that should work well in 2019. 1. Consider an adjustable rate mortgage You’ve probably always assumed you’d get a 30-year mortgage with a fixed interest rate, but if you’re not buying your forever home then the benefits of a 30-year mortgage aren’t necessarily there. For example, first-time homebuyers who are purchasing starter homes with plans to move on to something bigger and better after a few years might consider going with a five- or seven-year adjustable rate mortgage (ARM) that could potentially save them a couple of hundred dollars off their monthly payment. It also could ease the monthly payment burden a bit, as they most likely will sell their home before the rates adjust. 2. Put down less than 20 percent While 20 percent has traditionally been a benchmark for what is acceptable, this no longer holds true in the market. With FHA loans requiring around 3 percent, and other traditional loans offering 10 percent down options or lower, it makes sense to explore different products with your lender. In other words, don’t miss out on historically low-interest rates while trying to stash away cash. 3. Don’t wait for interest rates to drop For 2019, we likely are at the end of the low-interest cycle, and interest rates are at their lowest. So, if interest rates are the determining factor today is the time to buy. You can always wait for them to go lower, but you might be sorry if you do. 4. Wait to pay off your mortgage If you have a 30-year mortgage, chances are you have a dream to pay it off in at least 20. Not only will it give you an extra 10 years without a monthly payment, but it’ll save you tons of money in interest. Right? Not really. That’s not necessary anymore—and it probably won’t save you much money. Because interest rates are low, consider saving and investing with the money you would use to pay down your loan separately. You could always use the lump sum accumulated to pay it down or off any time you wish.