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Ellie Kravets' Blog

By Ellie Kravets, Realtor, ABR | Agent in San Francisco, CA
  • Buyers’ Cash Deposits Can Delay Closing

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  November 20, 2013 6:55 PM  |  588 views  |  No comments

    Home buyers who make cash deposits to their checking accounts that don't come from payroll checks or income tax refunds during the processing of a mortgage likely will face delays in closing, lending experts warn. That's because lenders are required to investigate possible suspicious activity for deposits that are not documented or cannot be explained, slowing down the process.

    Scott Sheldon, a senior loan officer with Sonoma County Mortgages, told Credit.com only money that can be adequately "sourced" can be used in the mortgage transaction. 

    "If you are self-employed and show cash deposits, that's OK — so long as you claim those monies as income on your tax return and you 'show' income from a filing standpoint," Sheldon says. 

    For example, if borrowers receive money from parents or family members, they will need to document and explain that deposited check to lenders. Sheldon says that buyers may want to avoid making deposits that will need to be explained at least 60 days prior to closing. 

    Source: “How Cash Income Can Cost You When Applying for a Mortgage,” Credit.com (Nov. 18, 2013)

  • Should You Pass On The Fixed Rate Mortgage?

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  November 19, 2013 7:01 PM  |  598 views  |  4 comments

    Back in 2004, Federal Reserve Chairman Alan Greenspan famously dissed the fixed-rate mortgage, suggesting that many homeowners were overpaying for their homes and that lenders should offer more alternatives in financing.

    We all know what that led to – the subprime and no-doc mortgage securities fiasco that caused the nation’s economy to collapse into the most protracted recession in history.

    Along with stocks that pay dividends, the stodgy fixed rate loan fell victim to the new economy thinking - risk gets better returns than safety.

    Now that we’ve returned to our senses, fixed-rate loans are top choice for borrowers again. But is the fixed rate mortgage the right choice in every case?

    Thirty year fixed rates are typically a point or two higher than the 5/1 adjustable rate mortgages. That could translate to as much as a couple of hundred dollars per month, depending on the size of the loan.

    The typical homebuyer in 2013, according to the National Association of REALTORS® plans to occupy their home for 15 years, but the reality is that they’ll stay nine years. For them, the fixed-rate mortgage is perfect, but what if a buyer plans to move in five or seven years?

    The adjustable rate mortgage may be the answer. A 5/1 ARM offers a fixed rate for five years, then rolls over to an adjustable rate that reflects market conditions at that time. The rate then adjusts once a year, up or down, depending on the vagaries of the 10-year Treasury note and other instruments. ARMS come with caps, which means that the rate will not adjust more than two points above each reset and more than six to seven points for the life of the loan.

    Since 2002, fixed rates fell by more than half, testing all-time lows again and again. Now they’re climbing again, but slowly.

    Basically, the longer the term, the more risk for the bank. The shorter the term, the more risk for the borrower.

    Ask your lender to show you the numbers - what will your loan look like in five years, seven years, ten years. If you can afford a fixed rate but choose an adjustable rate, make the payment difference to your mortgage principal, and you’ll build equity faster, allowing you to sell in five years with a little more in your pocket.

    Written by Blanche Evans

  • How Secured Cards Can Help You Build Credit

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  October 29, 2013 6:30 PM  |  567 views  |  No comments

    A secured card is a fantastic tool for building credit.

    Whether you have no credit or you're looking to rebuild your credit after some damaging financial times, signing up for a secured card is a smart way to get your credit back on the right track.

    With a secured card, your financial history or your lack of financial history won't be held against you. All borrowers are welcomed and approved.

    How can a credit card approve everyone who applies? It's easy. Every secured card asks for a deposit, typically $200 to $300. Meet this deposit and you'll be approved for the card. This deposit acts as your credit limit and will be returned to you with interest when you cancel the card.

    As you use a secured card, making purchases and paying your bill on time each month, the credit card company will report your account and your payment status to the three major credit bureaus. And voila, you are on your way to building up a positive credit history.

    As with any credit card, the best thing for your credit is to charge no more than 10 percent of your credit limit. If you have $250 credit limit, that means you'll want to spend no more than $25 per month on your card. If you have a $300 credit limit, you'll want to spend no more than $30 per month.

    So for purchases with a secured card, think small. Maybe treat yourself to a lunch or two each month with the card and that's it. Or think of a small purchase that you make every month anyway and use your secured card for that and nothing else. Remember: You're using your secured card as a credit-building tool, not a credit-borrowing tool. A secured card is a good choice for small purchases that you can comfortably pay in full each month. So do your best to charge no more than 10 percent of your credit limit with your secured card. Charging just $10 or $15 or $20 each month may seem like small, inconsequential use of your card, but it can do big things for your credit when you pay those small balances in full each and every month.

    Here's why.

    The FICO Credit score is the standard credit-scoring model used by lenders today. And 35 percent of the points that make up the FICO credit score is based on your payment history.

    Establishing a solid payment history is an essential first step to improving any credit score. How do you build a solid payment history? It's easy. Just pay your secured card bill and all your other bills on time each month.

    As mentioned above, charging 10 percent or less of a secured card's credit limit will also help boost your credit score.

    Another key factor in your credit score is something called revolving utilization. This fancy term simply means the amount of a credit card's limit that you are using. Each of your credit cards is scored one at a time and then again collectively.

    Every credit card account has a credit limit, the most you can charge with the card --- and a current balance, the amount you owe on a card.

    To determine your utilization, divide your secured card's current balance by its credit limit. Then multiply that number by 100.

    Let's look at an example. Let's say you have a $300 credit limit and you have a current balance of $15. Divide 15 (your current balance) by 300 (your credit limit) and you get 0.05. Multiply 0.05 by 100 and you get 5 percent. You're using 5 percent of your credit limit. Your revolving utilization is a healthy 5 percent.

    Thirty percent of your FICO score is based on revolving utilization. The lower your revolving debt utilization, the more points you'll get on your credit score.

    And that's why charging no more than 10 percent of your credit limit in any month is such an important guideline, especially when you're looking to boost your credit as quickly as you can.

    In contrast, making a large purchase on a card with a low credit limit will actually hurt your credit. Let's say you charge $275 on a secured card with $300 credit limit. Charging so close to your credit limit will deduct points from your credit score, and that's even if you pay your balance in full that month.

    Since using a secured card is all about building credit, you'll want to keep those purchase amounts as low as possible.

    After six months to a year of responsible use with a secured card, your credit score will improve enough that you may be eligible for better card offers, including unsecured cards that don't require a deposit.

    Your secured card issuer may offer you an unsecured card, and if it doesn't be sure to ask for one. And don't be afraid to shop around. There are deals are out there, and you and your improved credit deserve a good one.

    by Lucy Lazarony from Credit.com

  • Are You Really Ready for Home Ownership? 5 Signs It's Time

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  June 24, 2013 8:10 PM  |  599 views  |  No comments
    You think that you're ready to buy a home, but how can you be sure? The thought of owning a home is an exciting one, yet not everyone is ready. If you've been considering purchasing your first house, here are five signs that you're ready to take the plunge into home ownership:

    1.You Stick to a Budget

    Financial experts will tell you that creating and sticking to a budget is a sign of financial maturity. With the over 1.5 million foreclosures in the United States, it's easy to understand why this is so important. If you have already created a budget and have stuck to it, you're more ready than the next guy to own your own home. When you follow a budget, you know exactly where your money is going each month. When you know where your money is going, you know whether or not you can afford a home of your own.

    2.You Have a Down Payment

    The old rule of thumb still stands: Enough money should be saved for a 20 percent down payment on a house. When you put 20 percent down on a home, you immediately have equity built into the property and you negate the necessity of private mortgage insurance. Even with a 20 percent down payment, you should still stay away from home's that are out of your realistic price range. If you've budgeted for a $150,000 house, having 20 percent to put down doesn't mean that you should look for an $180,000 home.

    3.Your Income is Stable

    Finding a stable job can be tough to do in today's economy, but if you have a stable source of income, you can feel relatively safe making an investment in a home. If you are reliably employed, don't forget to factor in any life-changes that may crop up in the near or distant future. Do you plan to go back to school? Are you going to start a family? Budget for the home you can afford five years from now, not the one you can afford today.

    4.Your Credit Score is High

    The higher your credit score, the better your interest rate will be. The better your credit score, the more likely you are to be accepted for a loan. If your credit is in excellent shape, you're ready to buy a home. If, on the other hand, your credit needs some work, whip it into shape before you being the home-buying process. Before you buy a house, your debts should be paid off, any collections accounts should be closed satisfactorily, and your credit score should be in the 700's.

    5.You Have an Emergency Account

    Did you know that you should have enough money in the bank to cover at least three month worth of debt? If you have an emergency account, you can feel safe buying a home. Add your estimated mortgage payment, estimated utilities, and any recurring debts that you have, and multiply that number by three. The resultant number is the amount that you should have stashed away in the case of job loss, illness or other financial emergency.

    If you are thinking of buying a home, make sure that you are 100 percent ready. Re-read the tips above and, if they apply to you, the dream of owning your own home is within reach. If one or more doesn't apply to you, you have some work to do. Owning a home isn't a snap decision, it's a process. In the end, you'll be glad that you took your time and did it right.

    by Robin Wright

  • What Is The 'Qualified Mortgage' Rule?

    Posted Under: Home Buying in San Francisco, Credit Score in San Francisco, Investment Properties in San Francisco  |  May 2, 2013 12:45 PM  |  526 views  |  1 comment
    The Qualified Mortgage (QM) rule, also called the "Ability To Repay" rule, is the first-ever attempt at defining and establishing qualifying standards for borrowers applying for mortgage loans.

    Under the far-reaching Dodd-Frank Wall Street Reform and Consumer Protection Act the QM rule is being implemented by the Consumer Financial Protection Bureau (CFPB).

    QM loans get a full legal shield from the CFPB. The shield mandates that a judge would rule in lenders’ favor if the borrower contests a foreclosure on a QM.

    The CFPB announced on Jan. 10, 2013, QM loans cap the debt-to-income (DTI) ratio at 43 percent. Also mortgage rates on these loans can’t be more than 150 basis points over the benchmark rates.

    For the next seven year transition period, the DTI ratio of 43 percent can be exceeded if the loan is approved by Fannie, Freddie and FHA automatic underwriting systems.

    Are any loan programs exempted from QM Rule?

    Lenders will enjoy a safe harbor from litigation if they refinance borrowers from a hybrid adjustable rate mortgage (ARM), negative amortization loan or other toxic mortgage into a "standard mortgage" with fixed rates for at least five years, provided the new loan reduces the borrower’s monthly payments.

    Also, the Home Affordable Refinance Program (HARP) is exempt from the QM rule. HARP loans can exceed the maximum DTI requirements.

    Which loan programs don’t qualify for qualified mortgage status?

    Interest-only loans and negative amortization loans don’t qualify for QM status.

    Will the QM rule further tighten the lending standards?

    While the CFPB wanted to prevent a contraction of credit, it also wants to provide the "greatest consumer protections ever devised," CFPB director Richard Cordray said.

    However, David Stevens, the chief executive of the Mortgage Bankers Association, said the debt-to-income requirements for jumbo mortgages could tighten standards for those loans, which have already become much harder to get.

    "It will restrict credit on the margin over the current environment and that’s something we cannot afford," Stevens said.

    Does QM rule favor a certain category of lending institution?

    Most qualified mortgages will have a 3 percent cap on the amount of fees and origination costs that lenders can charge. Mortgage brokers are concerned it could hurt their business model.

    A 3 percent cap may not be much of a problem in high loan amount areas like most of California. However, in areas where loan sizes are small, 3 percent may not be enough to cover all origination fees, which can include loan points, processing fees, administration fees, underwriting fees, etc.

    In addition, mortgage units run by real estate brokerages and home builders could be hit because any costs from affiliated services that they offer, say, title insurance or mortgage services, would count towards that 3 percent cap.

    The CFPB is also seeking public comments on extending the QM exemptions to nonprofit groups and housing finance agencies that traditionally serve low- and moderate-income consumers.

    Are QM rules permanent or can be changed later?

    While any rule can be changed by Congressional mandate at a later date, it looks like this one is here to stay for decades.

    When is the Qualified Mortgage rule effective?

    The final QM Rule goes into effect on January 10, 2014

    by Shashank Shekhar

  • 5 Credit Myths to Ditch in 2013

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  January 15, 2013 7:20 PM  |  584 views  |  2 comments

    When one year ends and another begins, it’s hard not to look ahead and strive to do better. And when it comes to credit, we’re definitely creatures of habit. We resolve to spend less, but open store credit cards anyway. We vow to pay off debt, but only put down the minimum due. We aim to turn our credit around and boost our scores — and while we might think we have a handle on how the system works, we might actually have some misconceptions about credit that can keep our goals out of reach.

    So what should you do? We asked Credit.com expert Barry Paperno to highlight five popular credit myths to ditch in order to help everyone get a better handle on their finances.

    1. Having too much available credit on credit cards can hurt your score. Some people even think a lender “might deny your credit application if they think you have ‘too much’ credit available — high credit limits, many credit cards, or a combination — with the rationale being that if a consumer were to use all of that available credit, she may not be able to make the payments on the loan/card being applied for,” says Paperno. This was true before the era of credit scoring, but not today. “There is nothing in the scoring formulas that penalize a consumer for having too much available credit,” he says. If anything, it might prove your credit worthiness, as more available credit and lower balances tend to signify better behavior.

    2. Income is included in a credit score. Contrary to popular belief, credit reporting agencies aren’t interested in your income. In fact, that number won’t even go on your report. That’s not to say that income doesn’t matter—it does if you want to lower your debt or credit utilization — but salary, or any other metric that could define your “value,” like investments, net worth or assets, haven’t been included in credit scores for the past 20 years. That’s because lenders are more interested in your creditworthiness (whether you’ll pay a bill) than your capacity to pay it.

    3. Once married, a couple’s credit history is combined at the credit bureau, so that they have a joint credit report and joint credit score. You might share the kitchen, car and laundry detergent, but you’ll never share a credit report with your spouse. “Consumers have individual credit files and scores only, whether married or not,” Paperno says. It’s easy to think otherwise, considering how couples take on each other’s problems, and how the almighty score has started to play a role in dating, given the recession and its financial strain on households. Now, in the case of joint accounts, where both people are responsible for paying the debt, your spouse’s credit behavior will also be reflected on your credit report for that account — for better or worse. But your score and report are still your own, and that’s why it’s important to manage your credit carefully, especially when it comes to shared debts. It’s equally important to keep the lines of communication open about finances in your relationship.

    4. Carrying balances on credit cards from month to month is better for your score than paying them off in full. ”People think you have to have a balance reporting to show the account is active,” says Paperno. But “while activity is good, there are other ways, such as the last reporting date of the account, to measure it. All running a balance will get you is interest charges.” If you haven’t done so already, now might be a good time to set up automatic bill pay so that you pay off every bill in full (or as much as possible) each month so you don’t miss a payment or risk accruing more interest.

    5. A credit repair agency can get any negative information off of your credit report. First of all, if late payments are listed accurately on your credit report, no one can legally remove them, no matter what they promise. (That’s why turning to a credit repair organization will not solve the problem.) If the information is accurate, there’s not much you can do, other than make sure to make all payments on time going forward. If the information is inaccurate, however, what you can do is file a dispute with the credit reporting agency, asking them to correct inaccurate information or remove the negative info that doesn’t belong to you, which credit agencies are obligated to do within 30 days under the Fair Credit Reporting Act.
    By Jill Krasny | Credit.com

  • How to Keep Your Mortgage Approval Approved

    Posted Under: Home Buying in San Francisco, Financing in San Francisco, Credit Score in San Francisco  |  January 14, 2013 3:15 PM  |  576 views  |  7 comments

    You know how tough it is to qualify for a mortgage.

    Proof you've got a long-term job with ample income. A credit score to the moon. Your life's savings as a down payment. More cash stashed away. A debt-to-income ratio to die for. For some, tax returns for the last two years.
    You've been there, done that. For weeks now. Maybe a month or more.

    You've fought the good fight, you've run the gauntlet of mortgage qualifications and you have your signature-tired hands on that coveted home loan approval.

    Now, all you have to do is not blow it.

    For goodness sake, don't make any surprise financial moves that could cost you your home loan.

    Your mortgage approval is primarily based on documenting your income and assets, your equity stake or down payment, your credit and the cash you'll have left over after the deal is done.

    Once you have a mortgage approval, if you change the profile of any one of those qualifiers, you could have to kiss your mortgage goodbye.

    Lenders today don't just check your qualifying information once or even twice. Three, four or more checks, of one document or another, aren't out of the question in today's tight lending market.

    Avoid big purchases - If you buy a new car, change the lease, or acquire another large possession, it could show up on your credit report or bank statement.

    The lender could think you've gone beyond the risk the lender is willing to accept on your mortgage - especially if you qualified by a hair.

    If the new loan or purchase amount upsets the debt-to-income ratio the lender used to approve your home loan, your mortgage could go "poof."

    No new credit - Likewise, don't open new credit cards, even for a zero interest rate. Those credit card offers will come streaming in after you close your mortgage. Just wait. The lender didn't approve you based on the additional card or extra loan.

    Pay your bills - Also, pay your bills on time, even if there's a dispute. Stop paying a bill and the blotch on your credit report can block your mortgage.

    Keep your job - Be kind to your boss and don't get fired. Also, don't go looking for new work right now, unless it's a second job to make more money.

    Certain job changes also can affect how the lender rates your creditworthiness.

    That includes a job change between industries, a job change to start a new company and changing from a job with a salary to a job that pays by commission.

    On the other hand, get a promotion and a raise and you should be fine.

    Don't cash out - Leave your stashes of cash alone. Don't transfer large sums of money between bank accounts. Don't make random, undocumented deposits to or withdrawals from your bank account.

    Don't be stupid – It should go without saying, but criminal activity, trying to buy a second home and trying to add a co-signer or name to the loan, after approval, could all also get your mortgage canned.

    Remember, stuff happens. There are events beyond your control that could cost you your mortgage. A pink slip. A divorce. Hospitalization. The co-signer bails.

    However, once your mortgage is approved, do keep tight reigns on what you can control.

    by Broderick Perkins

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