John Beckett's Real Estate Blog

You’re finally wrapping up your home purchase. Congratulations. Before it’s officially yours, though, you have one last hurdle: the mysterious process known as “closing” or “settlement.” Open your wallet and hold onto your hat. “Closing costs” — the catch-all term for a host of fees, taxes and charges — can total 2% to 6% or more of your purchase price — $4,000 to $12,000 on a $200,000 mortgage. That means you’ll need to budget a chunk of money besides your down payment. Costs vary by region and by what you negotiate. Buyers usually pay most fees, but sellers may pay some, too. Buyers often get lenders to contribute, too. Be aware, however, that lenders offering a “zero-closing-cost” loan. Closing starts when you sign a purchase contract. It ends about four to eight weeks later, at a closing meeting (or conference) where you sign papers on your loan; pay fees, taxes and services to finalize the sale; and receive the keys and deed to your new home.

Who’s in charge?

A professional settlement agent orchestrates a closing. The agent files documents, pays taxes on your behalf, ensures every task is done and recorded in the time specified by law, and also may hire an appraiser, pest inspector and other professional services. The agent represents the buyer, the seller and the lender equally. In some states, the agent must be an attorney. In others, it’s an independent settlement or escrow company. (An escrow company is one licensed by the state to hold money and documents.) In many states, title companies — whose primary jobs are to make sure there are no claims on the property and to sell insurance guaranteeing that the title is clear — may be the settlement agent.

States’ requirements vary:

• In New York, only an attorney — usually a specialized “closing attorney” — oversees a closing.
• In Nevada, as in most states, title companies act as the settlement agent.
• In California and Wyoming, escrow companies are used.

The federal forms and rules used to disclose your loan costs and closing fees, however, are identical in every state:

• Your lender must give you a binding good-faith estimate, or GFE, within three business days after you apply for a loan. It shows loan costs and estimates your other closing costs. Your final origination charges and transfer taxes can’t vary from this estimate. Quotes for other services may vary by up to 10%. Bigger variations are a “tolerance violation” and the lender must credit you the difference within 30 days of your closing, says Cathy Blaszyk, vice president for lender services at Closing.com.
• At your closing, the settlement agent will give you a HUD-1 form showing your final costs.

How to shop

Closing costs vary greatly. In its 2009 survey of average total closing costs in 52 cities and states, Bankrate.com found a $1,579 difference between the highest-cost state, Texas, at $3,855, and Nevada, with the lowest average cost, $2,276. Most of these fees are negotiable, and you can shop separately for many of them. The consumer has to open their eyes, because they can save a lot of money. People spend more time shopping for a big-screen TV. Closing.com’s closing costs calculator lets you plug in home-purchase information to get numerous estimates and quotes on closing services from providers near you. By shopping aggressively, you might:

• Qualify for a better interest rate than you’d expected.
• Find that a loan offer with a higher interest rate is really the best deal when all closing costs are considered.
• Spot “junk” fees.
• Find lower rates on services such as title insurance, settlement services or inspections.
• Use these lower bids to negotiate better prices with your lender.

Start shopping for settlement services and for additional loan offers once you’ve made one mortgage-loan application. A lender must stick to its good-faith estimate for 10 days. The bank or broker can’t go back and make changes, which gives the borrower a chance to make comparisons. Don’t worry about hurting your credit score by making numerous loan applications. In “4 credit-scoring myths,” personal finance guru and MSN Money contributor Liz Pulliam Weston says that your FICO score will register multiple inquiries in a 45-day period as just one inquiry. Applying is free, except maybe for the cost of pulling your credit report — about $15, tops. Lenders can’t collect application or appraisal fees while you’re comparison shopping. Although recent changes in federal law make it harder for lenders to pad fees, you should still get expert help in reviewing offers and closing documents. The key is getting somebody who is trained and who can comprehensively look at it for you.

In advance, line up either of these:

• A real-estate attorney through the American Bar Association lawyer locator  or find referrals from a state or local bar association.
• A free, housing counselor certified by the Department of Housing and Urban Development (call 800-569-4287.

Read more at: http://realestate.msn.com/article.aspx?cp-documentid=25322086&page=2

If your primary goal is maintaining your credit scores, you should leave that extra card open — but not unused. Based on the list of cards in your wallet, I’d guess the card with zero activity is one you keep in case of emergencies. Having an emergency card is a smart move, since that plastic could come in handy when an unexpected event catches you without enough cash. Therefore, unless that extra card is causing legitimate problems – such as charging you an annual or inactivity fee, causing excessive temptation to spend or posing identity theft concerns – there probably isn’t a good reason to close that account. After all, a zero balance on a credit card account won’t hurt your FICO score, but closing an account could. If your card remains unused, however, the bank may cancel it for you. That’s because eventually the card issuer will close the account due to inactivity, because keeping the account open costs the lender money. In recent months, lenders have become eager to close accounts in an effort to protect their profits. Alternately, the card issuer could begin demanding that the consumer charge X amount to keep it open.Regardless of who closes an account, your credit scores may fall due to a change in a key credit scoring ratio. Closing an account causes you to lose the available credit limit associated with it. Your utilization rate, also called your balance-to-limit ratio, will increase as a result of closing the account. That may cause a temporary decline in your credit scores. That’s an important consideration if you’re about to apply for a loan. To get an idea of how your utilization ratio could be affected by closing an account, let’s say each of your four cards has a credit limit of $1,000, for a combined total of $4,000 in available credit. Let’s also say that across those four accounts, you’ve got a total debt burden of $2,000. Then your unused card gets closed, taking your available credit down to just $3,000. Now, instead of using 50% of your credit lines, you’re suddenly using 67% of your available credit. That higher proportion makes you appear to be a riskier borrower, because you’re that much closer to maxing out your available credit. Your credit scores will reflect such a change, although the actual scoring damage will vary from borrower to borrower. The FICO score assesses all the information on your credit report. So the score impact from any one action, such as closing an account, will depend on what other information is present on the credit report. Luckily, using that emergency card even semiregularly could prevent its closure by the bank  and could help your credit scores in the process. For example, you could charge a recurring subscription fee, such as Netflix, or a monthly cost, such as your cell phone bill, to your emergency card. By putting such regular charges on your plastic, you won’t be actually taking on additional debt but should keep the card alive. Just be sure you always pay your bills on time and in full, since those two steps are necessary for building good credit. Keeping the account open, using it to make small purchases and paying the balance in full each month is a good way to maintain your credit scores and might help improve them, especially if you’ve had recent credit problems. If you’ve been a responsible borrower, it’s unlikely that an account closure would have much impact. Because the most important steps for good credit involve making payments on time, not carrying excessive debt and applying for new loans only when necessary, closing one card is much less likely to affect your FICO score.

Read at: http://articles.moneycentral.msn.com/Banking/YourCreditRating/unused-credit-cards-can-hurt-you.aspx

Even though the first-time homebuyer tax credit ended April 30, there are still many ways the government provides help and incentives to get first-timers into the housing market. With all mortgages, the interest rate you get will depend on your credit score and market rates at the time you buy.

1. FHA-insured loans
The Federal Housing Administration doesn’t make loans, it insures them. You buy the insurance and the government sets the rules and repays your lender’s investment in case you default.

The rules:

• Down payments are as low as 3.5% (example, for a $230,000 home, you’d pay $8,050 in cash).
• Your FICO credit score  must be 580 or above.
• Find more information at HUD.gov or read “FHA loans get dramatically costlier.”

The good:

The requirements are pretty easy, so newbies can qualify.

• If you haven’t yet built a strong credit score – and don’t have a record of late payments, missed payments or a foreclosure – you can use “nontraditional” credit sources, such as cell phone or other utility bills, rent payments or medical bills, to qualify.
• The FHA limits extra charges (“points” and fees) for things such as title insurance and settlement and escrow fees. These can add up, otherwise.
• You can use gifts — from family, for example — or a local government loan or grant for your down payment. (With conventional loans, it has to be all your own money.) You could conceivably pay nothing for the down payment.
• You don’t need the big bank reserves that conventional loans require.

The wrinkles:

• You have to buy mortgage insurance. C’mon, you didn’t really expect all this for free, did you? And you’ll need a chunk o’ change upfront to close the purchase.
• Funky properties are out. On this, the government can be fussy. The property has to be in “turn-key” shape with no major repairs needed so you can move right in. Even chipping paint can sour a deal. But the times are with you: In markets where sellers far outnumber buyers – which is most markets these days – sellers may be happy to make the repairs in order to sell the place.
• If the property has been expanded or has an addition, the FHA wants to see local government permits for the work.

2. FHA 203K loan
This type of FHA loan lets you purchase and repair a fixer-upper or foreclosure property. We’re not talking spa bathrooms and a haute-cuisine kitchen. The loan is for replacing or repairing basic home systems such as the roof, furnace, plumbing, wiring and floors.

The rules

• The buyer finds three licensed contractors who submit bids for repairs.
• The lender examines the bids and rules out any that don’t meet program guidelines.
• The buyer hires one of the approved contractors.
• Repairs are done in phases. After each phase, a lender’s inspector examines and approves or rejects the work.

The benefits:

• Uncle Sam insures your mortgage, and loans you money for authorized repairs. For example, a lender may offer you — based on the appraised value of the property you’re buying — a mortgage of $100,000 plus a $50,000 loan for repairs.
• You repay both loans with a single monthly payment.

The wrinkles:

• The rules are strict to protect buyers.
• Repairs must all be done before you can take possession.

3. City, county and state grants and loans
Every state has a housing finance agency. These disperse federal, state and local money and oversee programs to help make housing affordable.

The benefits:

• Many agencies have first-time-buyer assistance programs — grants or loans.
• The amounts vary greatly from state to state, running from as little as $2,500 to as much as $150,000. They are mainly targeted at low- to moderate-income individuals and can sometimes have restrictions on where you purchase. These loans can be used to subsidize the loan you are obtaining from your lender and give you more purchasing power.

The wrinkles:

• You have to get in quick because these programs are not well-funded. It’s first-come, first-served, and when they run out of money they don’t have any more to lend.
• City, county and state programs may target certain low- to moderate-income neighborhoods for improvement, limiting your purchase to these areas.
• Some programs are offered only to low-income buyers.

Other options
4. VA loans. If you’re a veteran, you might qualify for a VA Guaranteed Home Loan from the Department of Veterans Affairs, with no down payment — although you must buy mortgage insurance.

5. Navy Federal Credit Union. The Navy Federal Credit Union is offering no-down-payment mortgages of up to $650,000 for qualified members. Department of Defense military and civilian personnel and their families can join the credit union.

6. Conventional loans
Private lenders, including credit unions, banks and mortgage brokers, vary in their fees and services. It pays to shop around. Keep in mind:

• If your down payment is less than 20% of the property’s cost, you’ll need to buy private mortgage insurance.
• You won’t need to buy mortgage insurance if you put 20% or more down.

Need help deciding if you should get a conventional loan? Read: “Which mortgage is right for you?“

Don’t hesitate to ask for help

Before you go home shopping, you can get free housing counseling from a nonprofit agency approved by the Department of Housing and Urban Development call 1-800-569-4287. Studies show that a borrower who obtains housing counseling prior to purchasing is less likely to be foreclosed on.

Read at: http://realestate.msn.com/article.aspx?cp-documentid=24119778

It’s important to note that raising your FICO credit score is a bit like losing weight: It takes time and there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage credit responsibly over time. See how much money you can save by just following these tips and raising your credit score.

Payment History Tips

• Pay your bills on time.
  Delinquent payments and collections can have a major negative impact on your FICO score.
• If you have missed payments, get current and stay current.
  The longer you pay your bills on time, the better your credit score.
• Be aware that paying off a collection account will not remove it from your credit report.
  It will stay on your report for seven years.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
  This won’t improve your credit score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Amounts Owed Tips

• Keep balances low on credit cards and other “revolving credit”.
  High outstanding debt can affect a credit score.
• Pay off debt rather than moving it around.
  The most effective way to improve your credit score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
• Don’t close unused credit cards as a short-term strategy to raise your score.
• Don’t open a number of new credit cards that you don’t need, just to increase your available credit.
  This approach could backfire and actually lower your credit score.

Length of Credit History Tips

• If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly.
  New accounts will lower your average account age, which will have a larger effect on your score if you don’t have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

New Credit Tips

• Do your rate shopping for a given loan within a focused period of time.
  FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
• Re-establish your credit history if you have had problems.
  Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.
• Note that it’s OK to request and check your own credit report.
  This won’t affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit Use Tips

• Apply for and open new credit accounts only as needed.
  Don’t open accounts just to have a better credit mix – it probably won’t raise your credit score.
• Have credit cards – but manage them responsibly.
  In general, having credit cards and installment loans (and paying timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
• Note that closing an account doesn’t make it go away.
  A closed account will still show up on your credit report, and may be considered by the score.

Read more at: http://www.myfico.com/CreditEducation/ImproveYourSCore.aspx