Home > Blogs > Olga Monson's Blog
15,918 views

Olga Monson's Blog

By Olga Monson | Agent in Fort Lauderdale, FL
  • The Importance Of Your Credit Rating

    Posted Under: Home Buying in Fort Lauderdale, Credit Score in Fort Lauderdale  |  July 12, 2013 7:07 PM  |  1,109 views  |  2 comments

    Every person that is over the age of eighteen in the United States has a credit score. Everyone has a social security number; this number is tied to the credit history. When a lender or company wants to assess a person’s credit score, the only things that the person needs is a name and a social security number. Social security numbers rarely are changed unless a person becomes a victim of identity theft so the system allows people to go from place to place and still have all of their financial information in one place. Here is some information on why a credit score is important.

    How Is a Credit Score Calculated?

    A credit score can be as low as 300 and as high as 850. A person with a credit score of 720 or higher is typically deemed to be a low credit risk to lenders. A credit score depends on the amount of debt a person has, the amount of the credit lines exhausted, the number of open accounts, and the number of missed payments and delinquent accounts.

    There is no specific formula that each of the three credit bureaus use to come up with a person’s credit score. This is why a consumer can have one credit score at one credit bureau that is higher or lower than the score at the next credit bureau.

    Potential Lenders and Companies Will Look At Your Credit Score

    Whenever an individual applies for anything from a bank loan, mortgage, personal loan, cell phone, apartment, or other item, their credit history is pulled as well as their credit score. The overall score is a major factor in whether or not the action is approved. For example, if a person has a low credit score then a cell phone company might not issue them a contract and if they do, they might require a deposit for service.

    The interest rate that a consumer is assessed on their loans and credit cards weighs heavily on their credit score. This is why it is important to have at least a credit score of 620 before applying for most loans and credit cards. Most lenders and financial institutions look at the 620 score as a jumping off point for negotiations. They reward people with lower interest rates as their credit score increases. This can save people a lot of money in fees.

    A Credit Score Speaks Volumes

    A credit score speaks volumes about how fiscally responsible a person is. Where financial transactions are concerned, people want to minimize the risk that the borrower will default on their financial obligations. This is why even having a high household income with a bad credit score means that a person will often be denied for lines of credit such as credit cards.

    Now many employers are asking to access a job applicant’s credit score. Many jobs that deal with money on a daily basis require a person to be responsible for handling cash. If an employer sees that an applicant has a bad credit score, then they may be hesitant to hire them. Many landlords now do credit checks on potential tenants. They do not want to take a risk if a tenant might not pay their rent on time each month, so they review the credit scores to find a desirable tenant.

    In conclusion, a credit score is something that an individual cannot escape. It increases and decreases all the time. It is important for consumers to pay their bills on time each month and try to reduce their outstanding debts as soon as possible. This will help them to have a good credit score that will save them money on  fees and will give them more opportunities to secure the lines of credit that they need.

    The best app I found so far that lets you check and track your credit score for free is called Credit Karma. It gives you a set of amazing toold to improve your credit score and it is all free. 
    https://www.creditkarma.com. I don't recommend anything that I don't use myself.

    Olga Monson  

    Coldwell Banker R.E.

    Direct Cellular:(954) 512 3044

    http://www.OlgaMonson.com

    Mailto: Olga.Monson@floridamoves.com
    www.linkedin.com/in/olgamonson/









  • Applying for and Getting Your Mortgage

    Posted Under: Home Buying in Fort Lauderdale, Credit Score in Fort Lauderdale, Investment Properties in Fort Lauderdale  |  July 9, 2013 7:13 AM  |  253 views  |  No comments
    Once you have selected your lender and type of mortgage, it is time to submit your application and get your loan approved. Find out what you’ll need to know to successfully manage the process.

    An important step to becoming a homeowner is completing your mortgage loan application (officially referred to as the Uniform Residential Loan Application). This is a lengthy application that documents your personal information (Social Security Number, date of birth, etc.), employment information, assets and liabilities, mortgage terms and much more. You’ll want to work with your lender to complete all fields, especially as they relate to the type of mortgage and terms.

    Once you and any co-borrowers have completed and signed the application, your lender will:

    • Pull your credit report and score from all three major agencies to verify your credit history. Make sure you know what they find.
    • Evaluate the four C’s to determine if you are creditworthy:
      • Capacity - Current and future ability to make payments
      • Capital or cash reserves - Money, savings and investments you have that can be sold quickly for cash
      • Collateral - The property that you will purchase
      • Credit - Your history of paying bills and other debts on time

    At this point, your lender can provide you with a pre-approval letter that outlines how much you qualify to borrow and the specific terms of the loan. Now, you can begin looking for your new home with greater confidence.

    Once you have found the home you want to buy and have signed a Purchase Agreement for the property, you are ready to complete the application process by providing your lender with the address and property details. Your lender will then:

    • Get an appraisal to determine the market value of the property, because it will be used as collateral for your loan. You have a legal right to get a copy of this and will want a copy for your records.
    • Issue a Commitment Letter detailing the terms of your loan approval.

    The Commitment Letter serves as final approval of your mortgage loan and states the terms of the approval. Once you receive and accept this, you are assured the financing needed to complete the purchase of your home and can now focus on completing the details required for closing.

    Olga Monson  

    Coldwell Banker R.E.

    Direct Cellular:(954) 512 3044

    http://www.OlgaMonson.com

    Mailto: Olga.Monson@floridamoves.com
    www.linkedin.com/in/olgamonson/


  • Does Paying Rent Improve Your Credit Score?

    Posted Under: Credit Score in Fort Lauderdale  |  May 14, 2013 8:33 AM  |  236 views  |  No comments

    Not too long ago, paying rent didn’t have much to do with your credit score. Not paying rent could (and still can) wreck your credit score. If you were behind enough to have your account sent to a collections agency, your past-due rent would likely be reported as negative information to the credit bureaus.

    Rental rates in the United States are skyrocketing because of foreclosures, an unstable housing market, and the general hesitance of younger Americans, especially, to buy homes. While renting can be a good option for many, historically it has not been helpful in building a credit score.

    For renters who are rebuilding credit after a foreclosure, or those who are renting until they can afford to buy a house, that’s a problem.

    For many of us, rent is the biggest check to hit the bank account every month, and not getting some acknowledgement for paying that important bill on time is frustrating.

    Luckily, some of the major credit bureaus are beginning to take rent into account on credit scores.

    Experian and TransUnion now allow renters to include their positive payment information in their credit histories, according to the Wall Street Journal. But because this is relatively new, there are some caveats. Here’s what you need to know about your rent’s effect on your credit score:

    Not All Companies Use It

    At the moment, Experian and TransUnion will include rental information in your credit file; Equifax will not.

    Also, not all credit score calculations are set up to include rental payments. The VantageScore calculation may incorporate rent into your score, but the more popular FICO calculation will not. This means that rent will affect certain scores based on the information from certain credit files.

    Here’s how it works: Each credit reporting bureau keeps a file of credit history information on you. Your credit history is the basic facts of your payments, account inquiries, balances and such. It doesn’t automatically have a numerical score assigned to it.

    In order to get a credit score, a credit scoring formula is applied to the raw information in your credit history file. This means that you could get three very different FICO scores – one for each credit bureau – or even three very different VantageScore results. And lenders can choose which score they use.

    Most lenders use the FICO score, but VantageScore is starting to be used more often. To keep up, FICO may change its formula to include things like rent and utilities payments.

    It’s Not (Usually) Automatic

    Experian is working with property managers through its RentBureau system to have rental payment data automatically updated for renters. Even though the company works with landlords across the country, only a fraction of renters have their information automatically reported to RentBureau.

    So even if your landlord does report your rental information to Experian or TransUnion, and even if you do pay your rent on time, you may not see a huge credit score boost. The inclusion of rent in a credit score calculation is mostly meant to benefit those who otherwise wouldn’t have much – or any – information in their credit files.

    Of course, as more Americans opt to rent instead of buy, these standards could change.

    How to Get Rent Counted in Your Credit Score

    Now that you know these caveats, you may still be interested in having your rent reported in your credit history. It’s a good idea if you’re trying to repair bad credit, or if you don’t have much credit history. But how do you get it done? Here are four options:

    1. Talk to your landlord. According to Experian, you can ask your landlord or property management company to join the RentBureau program. Your landlord has to sign up with a rental payment service that works with RentBureau, and then you can opt to have your rental history reported to Experian.

    2. Use WilliamPaid to pay rent. WilliamPaid is one of the services that Experian, in particular, uses. Your landlord doesn’t have to sign up for you to use it. Basically, you use the service to pay your rent with a credit card, debit card, bank account or cash, which is accepted at certain retail locations. WilliamPaid also has an automatic payment option.

    The fees for using various WilliamPaid payment options vary. It’s free to have your bank account electronically debited, but it costs 2.95 percent of your total payment to charge it on your card. You can also use a combination of payment methods for a 2.95 percent fee. Also, you can use the service to split rent payments between roommates, tracking who has paid and who hasn’t.

    With WilliamPaid, you can have your rental payments reported to Experian. If you’re responsible with your payments and have them drafted from your bank account, it’s an excellent, free way to include rent on at least one of your credit reports. And if you use a credit card, you get the added benefit of having your credit card payments reported to the credit bureaus by your credit card company.

    3. Try Rent Reporters. Rent Reporters is another rent reporting service, but it is not free. To get started, you enroll in the service, and the company verifies your information. Then, you’ll get an online account where you can track what information is being reported to credit bureaus.

    You can sign up with Rent Reporters for free, and they’ll verify your information. Then, you pay $9.95 a month to have your rental information reported to the bureaus. For an additional $34.95, Rent Reporters can send up to two years of your rental payment information, as well. This could be a good option if you’ve always paid your rent on time and are trying to boost your credit score.

    4. Check out Rental Kharma. Rental Kharma is similar to Rent Reporters. Again, you create an online account, but with this service, you’ll pay a one-time $10 fee for reporting up to two years of rent payments.

    Rental Kharma provides information only to TransUnion, but Cullen Canazares, the company’s founder, said via email that Rental Kharma hopes to begin working with Experian soon.

    One interesting thing about how this service works is that it makes rent appear as a tradeline on your TransUnion credit report. A tradeline is an account, according to Experian. So, essentially, TransUnion treats your rent payments like a credit card account or another installment type loan.

    Are These Services Right for You?

    Whether these services are right for you depends on your credit situation and needs. Because rent is meant to be part of the credit scoring process for those with bad credit history or no credit history, these options are best for those on the low end of the credit ladder.

    However, remember that you’re not guaranteed to receive better loan offers, even if your rent is reported to Experian and TransUnion, since you never know which score from which bureau a potential lender will pull.

    Still, with services like Rental Kharma, costing $10 (or $20 if you’re married because you’ll have to apply separately), and with potentially free options like WilliamPaid, it doesn’t cost much to get a potential credit score boost. Plus, FICO may make some changes soon that could broaden the impact of having your rental income on your credit report.

    www.OlgaMonson.com

  • Pre-Approval vs. Loan Commitment

    Posted Under: Home Buying in Fort Lauderdale, Home Insurance in Fort Lauderdale, Credit Score in Fort Lauderdale  |  January 30, 2013 3:03 PM  |  734 views  |  No comments

    One of the most misunderstood item in the mortgage process is the difference between a “pre-approval” (sometimes referred to as “pre-qualification” or “preliminary loan approval”) and a "loan commitment".  Knowing the differences between the two will help you avoid unpleasant surprises when you are in the process of obtaining a mortgage loan.

    It is important for consumers to understand that for most mortgage loans, the lender will verify various items about you and the property before the lender will provide the mortgage loan (Note - there are loan programs that do not require verification of income and/or assets, but these programs usually have higher interest rates).  The verification process includes such items as your income, employment history, assets, credit record, the value and condition of the property, and the status of title to the property. The verification of a particular item can take on many forms. For example, verification of income could be performed via your tax returns, pay stubs, W-2s, and/or a letter from your employer.  

    The typical process followed by most mortgage lenders is to first perform a pre-approval. With this process, the lender will take a loan application and obtain a credit report. The information in the application and the credit report are analyzed by the lender, and then the lender will issue a decision (either verbally or in writing) on whether or not you are qualified for the loan. The pre-approval will  state that you are qualified for the loan subject to verification of certain items. Thus, it is important to note that the only item that has been verified is your credit history via the credit report. 

    The next step is the verification process. During this process, the information on the application is verified (i.e. income, employment, assets, etc.), the property appraisal is ordered, and the title search is ordered. Once these activities are completed, the lender can then issue a loan commitment. 

    Do most pre-approvals result in loan commitments?  Assuming the lender is diligent during the pre-approval process, yes.  However, it is not uncommon for a consumer to receive a pre-approval and then find out later that the pre-approval was subject to conditions the consumer could not meet, thus prohibiting them from receiving the loan, or forcing them to accept a loan at a higher interest rate or lower loan amount. 

    Consumers need to be particularly aware of lenders that promote “loan approval in 24 hours” or other similar claims.  What these lenders are really saying (and let’s hope they are not trying to be deceptive) is pre-approval in 24 hours. In fact, most lenders should be able to provide a pre-approval in 24-48 hours. But remember – until the information is verified, you do not have a loan commitment.

    Now, there is nothing wrong with obtaining a pre-approval.  This is an important first step in obtaining a mortgage loan.  A pre-approval is particularly important when the loan will be used to purchase a home, as it provides you with a good indication of the loan amount you can receive (and thus the price range of a house you can purchase). But keep in mind, your ultimate objective is to obtain a loan commitment. 

     As a consumer, what can you do? We suggest the following:

    •   Simply understanding the difference between a pre-approval and a loan commitment is key. If a lender says you are approved for a loan and you have not yet supplied any documentation to verify your assets, income, and/or employment, recognize that the lender is really saying you are pre-approved for a loan. 

    •  Insure that you are working with a reputable lender.  If the lender is sloppy in the pre-approval process, it could mean problems down the road.

    •  Work closely with your lender and provide the documentation it requests as quickly as possible. The faster you can provide the documentation, the sooner you will obtain the loan commitment.

    • Once you have supplied all the necessary documentation, the lender should issue you a written “Loan Commitment Letter”.  This document will typically state that your loan approval is subject to certain conditions. Review these conditions carefully to insure that you can meet all the conditions. 

  • Understanding real estate terms. What is debt-to-equity ratio?

    Posted Under: Home Buying in Fort Lauderdale, Foreclosure in Fort Lauderdale, Credit Score in Fort Lauderdale  |  December 28, 2012 6:13 AM  |  256 views  |  No comments

    The debt-to-equity ratio, also referred to as the loan-to-value ratio, is a rule used by banks requiring that a borrower invest a minimum amount of equity cash (usually 10% to 25% of the purchase price) as a condition to obtaining a mortgage.  The rule is used in conjunction with the carrying-cost rule to determine how much money a bank will lend.  A ratio of 1 means 100% leverage of a property, and higher than 1 means negative equity.

    Debt-to-equity ratios can determine whether you can afford the house you want, or whether you can refinance the investment property you already own. It's a financial term, but it's also a measure of ownership: if the ratio is 60/40 of debt to equity, that means the bank owns 60 percent of the value of your home.

    Equity is the value in your home -- or any piece of property -- greater than what you owe the bank. If your home is worth $220,000 and you owe $100,000 on your mortgage, your equity is $120,000. Your debt-to-equity ratio is 45/55, as your debt equals roughly 45 percent of your home's fair market value. Paying off the mortgage increases your equity. So does a good housing market: If your home's value rises by $30,000, so does your equity.

    Buying

    When you buy real estate, your down payment is all the equity you have in the property. The debt-to-equity ratio measures how much skin you have in the game: if your down payment is too small, lenders worry it's too easy for you to default and walk away. In 2011, for example, the national average down payment was 12.24 percent of the home price, giving buyers a ratio of 87.76 percent debt to 12.24 percent equity. Lenders writing federally backed mortgages may accept a down payment as low as 3.5 percent, or as high as 30 percent for an investment property.

    Borrowing

    If you've built up some equity in your home, you can borrow against it with a second mortgage -- also sometimes called a home equity loan -- or a home equity line of credit. To get a decent rate on the loan, you need a good debt-to-equity ratio. Typically, banks want to see at least 20 percent equity left after you take out the loan: On a $220,000 house with a $100,000 mortgage you could generally borrow up to $76,000 more without any problems.

    Underwater Equity

    A property is "underwater" when the debt-to-equity relationship goes negative. If the rental house you bought is now worth $140,000 and you owe $180,000 on the mortgage, you have a negative $40,000 in equity. The collapse of the housing market in the early left millions of properties suddenly worth less than the remaining mortgage. This isn't a problem if the owners can afford to hang on to the property long-term, but owners who have to move, or who bought houses intending to resell at a profit, have found themselves in serious trouble.

    The debt-to-equity ratio is tremendously important in real estate, because it greatly influences the motivation of the homeowners to keep and care for the property. Assume that the market price of the home in the previous example drops to $170,000. With a total debt of $180,000, the equity is negative $10,000, resulting in a negative debt-to-equity ratio. Should the house be sold for $170,000, the owner would not only lose the entire down payment, but also owe the mortgage lender an additional $10,000. A homeowner in this situation may feel that making monthly mortgage payments constitutes "throwing money into a bottomless pit" and elect to default on her mortgage payments.

    Since a drastic change in the debt-to-equity ratio can have unpleasant consequences, lenders take numerous measures to prevent such an outcome. The most important precaution is to increase the size of the down payment required at the time of purchase. The larger the down payment, the greater the decline in the market value of the property before the owner will have negative equity. In addition, lenders try to estimate potential market price fluctuations in various real estate markets and further increase down payment limits in particularly volatile markets.

 
Copyright © 2014 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer