Credit Score Tag

With home values climbing to record highs, many have rushed to their bank to take out a line of credit against their homes. For some it has been to make home improvements or consolidate debts. For others it was to take a vacation or purchase a car.
Recent changes have made home equity loans less favorable. For one, home equity loans no longer provide a tax deduction. Secondly, most have variable rates that are moving higher with each rate hike the Federal Reserve makes. Given new tax laws and the outlook for continued Fed rate hikes, the cost of borrowing against a home equity line of credit is increasing.
In most cases, I’m not a fan of home equity lines. If they help solve critical financial issues, they are wonderful. However, most are used to spend money that a family would otherwise not need to spend.
If you have a small balance on a line of credit, focus on paying it off as quickly as possible. Make minimum payments on your primary mortgage until the balance of the credit line is paid. Then take the amount your budget is used to paying and apply that as a principal reduction to your mortgage. That will help you pay off your home faster.
If you have a large home equity line balance, consider at what point it makes sense to consolidate that into your primary mortgage. The blended rate of a home equity loan and your current mortgage is often higher than the current rates to refinance. If you need help determining what is best, we are here for you.

Whether you’re looking to get a new mortgage or refinance an existing one, your credit score is one of the biggest financial factors in this world. A high credit score will help you get the best mortgage rate available and qualify for many special programs, while a low score may prohibit you from qualifying for your desired mortgage type.

At City Creek Mortgage, we’re here to help. We have a variety of loan programs for people with varying credit score ranges, and we also offer many tips to our clients for improving their score. One thing we often find helpful? Knowing how the various credit bureaus weight important factors in your score. Here are the five primary areas they inspect.

Payment History (35 percent weight)

Your history of paying off previous credit is the single most important factor in your credit score and how it changes. Things like late payments or past due charges are a big negative here, so try to avoid these at all costs.

Utilization Rate (30 percent weight)

Simply put, your credit utilization rate describes the amount you owe on all your credit accounts compared to your total credit limit. In general, it’s best to never go over 30 percent of your available credit in use – anything below this can start dropping your score.

Length of History (15 percent weight)

Not only is your payment history important, the length of time you’ve had accounts open also plays a role. Your history of payments might be great, but if it’s limited in its scope, banks still have to assume some risk.

Inquiries (10 percent weight)

This refers to any attempts you make to open new credit accounts or make credit inquiries. In some cases, opening too many new accounts in a short period of time will be viewed as a credit red flag meant to artificially inflate your utilization rate.

Types of Credit Used (10 percent weight)

How many accounts do you have open? Are you using options like revolving cards or installment plans? These will factor in as well.

For more on how credit bureaus weight your score, or to learn about any of our mortgage loan options, speak to the pros at City Creek Mortgage today.

When structured properly, a home mortgage can be a tool to help you build net worth. However, when not properly managed, a mortgage can cause excess burden and be a financial and emotional drain. In the current environment of distressed home values and inevitable interest rate increases, now is the time to ensure that you have a mortgage strategy that is in line with your long-term goals. When advising my clients on their next mortgage, we consider much more than just their loan.

Secondary Home
I ensure they avoid making the following 5 most costly mortgage mistakes:

  1. Listing your home without first being approved for your next home purchase.
    I often hear of horror stories where a homeowner sells their current home and later realizes that they are not in position to financially qualify for their next home. As a result, they are forced to either rent or purchase a house that is less than they had hoped for.
  2. Borrowing more than you can afford or accepting a short amortization with a payment that is not sustainable within your budget.
    Many homeowners have unmanageable mortgage payments. The inevitable result of an over-extended budget is an eventual inability to keep up with the required obligation. Emotions play a large role in how much home to buy, and when to have the mortgage paid off. Making wise and well thought-out mortgage decisions is crucial for long-term mental and financial health.
  3. Not addressing credit challenges in time to help improve your score.
    The interest rate you will qualify for is dependent upon your credit score, more so in today’s market than ever before. Having a credit review in time to correct errors can save you thousands of dollars in interest over the life of a mortgage.
  4. Putting down your entire savings and not maintaining an adequate cash reserve.
    Maintaining a cash reserve is the most important step in achieving financial peace. Without a cash reserve, families live paycheck to paycheck and in a constant state of stress. By not putting down every dollar you have, you can prevent the anxiety of day to day cash flow challenges.
  5. Not considering consumer debts or other investment opportunities when determining how much to put down on your home.
    Managing daily cash flow and minimizing interest expenses is an important consideration for longterm net worth growth. Sometimes, getting on the right path requires a one-time decision to clean up consumer debts to free up cash flow to help increase long term investment opportunities.

By avoiding these common mistakes you can help ensure you are making wise decisions regarding your mortgage that will be most beneficial to you in the long term. Please contact me to discuss how these and other potential pitfalls can be avoided. By having these discussions early in your home buying process, you will be better prepared when the time comes to close on your next home.

 

 

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Consumer debt among American families was recently
reported to total $12.73 trillion. To put this into
perspective, the US government debt is just shy of $20
trillion. The outrageous amount currently owned by
consumers is higher now than the peak reached in 2008
before the economic collapse. Although consumers are
handling this level of debt better today than they did in
2008, it still represents a tremendous risk to individuals
and our economy as a whole.
Interestingly enough, mortgage debt is now a smaller
percentage of total debt than it was back in 2008. Of
course, this is primarily due to tighter lending restrictions.
This means that Americans are holding more debt in
riskier loans such as credit cards, bank loans and car
loans for example. Much of this debt is subject to
fluctuating interest rates, which is now something we
need to consider as the Fed pushes short term rates
higher.
I believe that consumer debt is usually a habit. Unsecured
debt, such as credit cards, could be a sign of spending
more than the income flowing into the household. To
break this cycle, sometimes more extreme measures
must be deployed. If the goal is to get out of consumer
debt, it could be advantageous to use a mortgage or
home equity loan to help. With values rising to premarket
crash levels, most people have a decent amount
of equity in their homes. However, I strongly caution
against this without a plan to break the cycle that led to
the debt in the first place. Otherwise, the same situation
is likely to occur.

You want to get the best mortgage rate when you’re shopping around for your new home, and there are a bunch of different factors at play here. One of the biggest, no matter who you are or what the details of your situation may be? Credit score.

At City Creek Mortgage, our mortgage loan programs are available for people all over the credit score spectrum. Your options grow exponentially the higher your score is, though, and people with very low scores may be extremely limited in the loans they can be approved for. With that in mind, here are a few tips to help you keep that credit score up and your options open.

The 20-10 Rule

Many people ruin their credit score through a basic mishandling of daily spending, and the 20-10 rule is perfect if you’re among this group. It’s a simple goal: Never let your credit debt get higher than 20 percent of your yearly post-tax income, and never siphon more than 10 percent of your monthly income to pay credit debts. If you can’t stick within these themes, there’s a good chance you need to re-evaluate your overall finances. If you can, try to be even more strict – the better you do, the higher your score might be.

Easy Debt

Credit score is raised most easily by successfully paying down some active debt, so a great way to get it a quick boost, if you have the funds, is to take on a small bit of “easy” debt which you know you can repay in short order. This could be for a single moderate purchase, or even for things like groceries over a span of a few weeks or months. As long as you’re 100 percent sure you can make payments on time, or even ahead of schedule, this is a low-risk way of raising your score.

Emergency Backup

Always keep funds in reserve for emergencies. It’s not desirable whatsoever to get stuck in a situation where you’re using credit for a big chunk payment you weren’t expecting, and this can torpedo your credit rating. Try to keep at least 15 percent of your available credit open, if not more, and try to keep separate emergency funds on hand.

Organization

Most of all, stay organized. Missed payments are one of the quickest ways to put a dent in your score – there are plenty of easy ways to schedule payments in advance to keep this from happening. Also stay aware of your line of credit and your spending limits, as going over these could also really damage your score.

Want to learn more about credit sore, or any of the other vital factors in your mortgage application? Speak to an expert broker at City Creek Mortgage today.

City Creek Mortgage has access to the lowest interest rates available in the country. However, this is a privilege that is only available to those considered as top tier borrowers. Furthermore, the loan process to obtain the lowest rate is often more difficult and time consuming to the borrower. Based on our review of your file, you fit within the criteria to obtain the lowest rate. However, we want to make sure you are willing to help us through the process of the extra verification and scrutiny that will be required.

What is Required from the Borrower to Achieve the Lowest Rate?

First of all, we don’t want to make this sound more difficult that it truly is. Generally speaking, most loans flow through this process without much extra effort. However, in some cases, we have found more required in the following areas:

  • A full two years of taxes are required
  • Unknown deposits on a bank statement must be explained and documented
  • Appraisals take longer to complete
  • Extra explanation may be required for income or job history
  • We are subject to the underwriter’s time-lines – no rushes allowed
  • Appraisal reviews and extra property scrutiny

Assuming you are willing to put in the extra effort to achieve the lowest rate, know that we will use our years of experience and expertise to help make this process as smooth as possible. We are your partners in this process and will work diligently and quickly to get your loan closed with as minimal effort as possible. When we call to ask for something that seems absurd, just remember this explanation and know that the reward will be the lowest interest rate available in the market.

Are there Alternatives?

We recognize that some would rather pay a slightly higher interest rate and have the smoothest mortgage process possible. If this fits your situation, please let us know. Our goal is to ensure that your needs are met and your final goals and objectives are obtained.

If you have any additional questions, please let us know. We are always here for you.

Before and during the loan process many people make mistakes that may cost them their approval and the home of their dreams.

To avoid this potential disappointment always follow these guidelines…

  • Don’t change your job
  • Don’t quit your job
  • Don’t become self-employed
  • Don’t move your bank accounts.
  • Don’t buy anything you have to finance (cars, trucks, furniture, etc).
  • Don’t buy furniture on credit.
  • Don’t open any new consumer credit accounts.
  • Don’t be late on any of your credit liabilities or charge excessively.
  • Don’t make large deposits into your bank accounts that you don’t want to explain or document.
  • Don’t co-sign on a loan for anyone.
  • Don’t fail to disclose any debts, obligations, or pertinent information.
  • Don’t spend savings budgeted for your down payment or cash needed at closing.
  • Don’t forget to disclose child support or alimony.

 

Remember, your loan is not final until it has FUNDED & RECORDED.

To be safe follow all of these rules until after that point to ensure you get the home of your dreams!

If you have any questions about how to avoid these pitfalls, please don’t hesitate to give me a call at
801-501-7950 or email me at mike@citycreekmortgage.com.