Family Finance (4)
What Role Does Your Credit Score Play in Down Payments?
The mortgage market is loosening up just a bit, and you’re hoping to become a new homeowner. But experts say before perusing the listings, you need to understand the role your credit score can play in the amount of money you'll need to pony up to qualify for a mortgage or get through closing. Or that adding one or two more points to your credit score can save you hundreds -- or more -- at closing.
“1 point can make the difference between being approved with only putting 10 percent down payment versus needing to put 15 or 20 percent as a down payment,” says Eugene Hedlund, mortgage broker in Irvine, California.
How low can you go
Doug deBruyn, certified mortgage planning specialist in Bellevue, WA says the lowest your score can dip to qualify for any mortgage is 620. “That score will let you go with an FHA, government backed, loan which requires no less than 3.5 percent down.” But he cautions “conventional loans” aren’t as liberal as their FHA counterparts. You typically need at least 10 percent down; more if your credit is shaky. “One of my lenders will underwrite a 680 score with less than 20 percent down while another might consider a score of 660,” he says. “But those might carry a much higher interest rate than if a person’s score was in the 700s.”
That’s because when lenders underwrite loans, they do so with the intention that the loan will be attractive to Fannie Mae and Freddie Mac. “Fannie and Freddie purchase loans, and are far less willing to purchase risky loans than they once were,” says deBruyn. These players prefer transactions that already have some equity in them. “Fannie and Freddie don’t like a loan to value (LTV) ratio greater than 80%,” deBruyn explains. “If your credit isn’t up to snuff, lenders might want an even lower LTV to entice Fannie and Freddie.” So you may have to come up with a bigger down payment.
Closing in on costs
Your credit also dictates the interest rate at which a lender is willing to give you a mortgage. Hedlund says to get a rate that you can afford, “you might have to cough up additional money at closing for “points”, the penalty that’s equal to a percent of the loan, a borrower pays to the lender to secure an interest rate.”
The lower the credit score, Hedlund says the more money you’ll either need to put down, or pay in points. “Any score below 740 will have a direct impact on how much money you’ll need at closing.” For example: To qualify for an interest rate of 5.25%, here’s how your credit score can affect how much it’ll cost you to get into a new home:
Down payment of 40%
Credit Score Points
620 - 660 .5%
660 - 699 no points
700 and above .25% credit to the buyer.
Down payment of 30%
Credit Score Points
620 - 639 1.5 points
640 - 659 1.25 points
660 - 679 1 point
680 - 719 .5 points
720+ no points
Down payment of 25%
Credit Score Points
620 - 639 2.75 points
640 - 659 2.5 points
660 - 679 2 points
680 - 699 1 point
700 - 719 .5 points
720+ no points
Down payment of 10% - 20%
Credit Score Points
620 - 659 2.75 points
660 - 679 2.5 points
680 - 699 1.5 points
700 - 719 .75 points
720 - 739 .25 points
740+ no points
One more way your credit score matters is when you’re trying to secure PMi (private mortgage insurance), something that’s required when financing more than 80% of a home’s value. deBruyn says to qualify for PMI in this market, you need a score of 700 in all states (except in Florida, where you need a 720) for any loan with less than 20% down with a minimum down payment of 5%. “If putting down more than 20%, minimum credit score is 620,” he adds.
Hedlund notes whether you’re “just looking” or seriously shopping, it’s best to know what your credit score is (from all three credit bureaus). “Talk to a mortgage specialist to understand your options and what percentage of a down payment you’re likely to need before finding a house to avoid hitting any snags once you’ve fallen in love with a property.”
New or Used? How Your Credit Affects Your Next Ride.
Before perusing sticker prices or dreaming of after-market add-ons, experts suggest making an all-important pit stop. Delve into the three numbers that can either rev up - or stall - an auto purchase: Your credit score.
“Unlike a vehicle’s price, your FICO or credit score can be the most influential number in the transaction,” says Scott Stevenson, founder and CEO of eliminateidtheft.com.
The Weight of Your Number
Your credit scores carries a lot of weight at the dealer and drives the direction you should start looking for a vehicle. “Lenders use credit scores to gauge their potential risk and the likelihood the loan will be repaid,” explains Dan Danford, MBA, CRSP, principal and chief executive officer, Family Investment Center, St. Joseph, MO. A low score is interpreted as being too risky, and in some cases, means you won’t qualify for the amount needed to purchase a new car. “So you’ll have to find a less expensive car, which often means buying used,” he adds.
Those three numbers even impact how long it will take to complete your purchase. “A score of 620 or lower might require a car dealer to look for financing at several banks,” Danford explains. And that equates to several hours - or in some cases days - waiting to close the deal.
According to The United States Public Interest Research Group, a consumer protection group, 80% of credit reports have some type of mistake, and 25% contain a serious mistake. And, the Consumer Federation of America conservatively estimates that 40 million consumers are at risk of being misclassified by their credit report. To correct costly errors like accounts you closed but continue to report as open, balances reported as past due that are current, etc. the first step on the car shopping circuit is checking your credit.
Be thorough. You have three credit scores; one with each of the three major credit bureaus (TransUnion, Equifax, and Experian). And Stevenson says those scores aren’t necessarily all the same. “Some creditors report to all three, but different creditors report to different bureaus,” explains Stevenson. So, one bureau might have more - or less - information than the other.
The Magic Number
If you’re eying a new car, you’ll need a credit score of at least 520. But, to qualify for what Stevenson calls “an average interest rate”, between 5% to 7% you’ll need a score of at least 720. “The lower your score, the higher that rate climbs,” he says.
Credit scores over 720 can attract promotional interest rates as low as 0.9%. While a score that’s between 720 and 620, can expect rates of 7% to 10%. Depending on the lender, credit scores that fall between 620 and 520 often require “special” or “subprime” financing which usually carries a premium rate of 19% to 24%.
Stevenson says the numbers are a bit more flexible for used car transactions. Because the size of the loan is usually lower, lenders will work with lower scores. “I’ve seen subprime lending with scores lower than 500,” says Stevenson.
However, new or used, your credit drives the amount of cash you’ll need to cough up for a down payment. “Lenders will only extend themselves “so far” based on credit scores. And that can translate into a consumer with a score of 620 or lower needing to come up with more money to complete the purchase.” That additional amount can add up to as much as 20% down because Danford says lenders want the assurance you’re invested in the transaction. “The bank, or lending institution wants assurances that a loan will be paid off. And a sizable down payment reduces the chances a consumer will default on the loan,” he notes.
Rev Up Your Score
Regardless of your score, it’s a good idea to aim higher. “The higher the number, the more money you’ll save at the dealer,” says Stevenson. To give your credit score a boost:
- Be Prompt. Make credit card and other card payments (that appear on your credit report) on time. One missed or late payment can drop your score by as many as 10 points.
- Cut Back. Maxed out accounts send the message you’re in financial trouble. Reduce your credit card balances to no more than 50% or less of the available credit.
- Clean up. Dispute any erroneous or duplicated negative information on your credit report.
- Hold out. Every new credit account application can shave 5 or more points off your score. Wait to apply for new credit accounts until after you’ve secured and closed on an auto loan.
- Balance your credit. You need one car loan, one mortgage and 3 to 5 credit cards in good standing (current and not past due in the past 6 months) to have the right mixture.
While you’re kicking tires, ask the dealer which bureau they use to check your credit. “That will give you an understanding of what score they’re going to see,” says Stevenson. And of what number requires the most immediate attention.
How to know when it's time to keep, toss or sell;
It’s important to do your homework before selling, donating or giving away yours or your family members’ possessions. That cookie jar that you’ve had for thirty years could be worth gold coins. It could also be nothing more than mere crumbs. But, it’s hard to know what you should hold on to and what’s OK to let go. And, how to find out how much the possessions and family heirlooms you’re considering keeping are worth or what you should consider having appraised.
Whether you’re clearing out your attic or cleaning up a parent’s basement, your first inclination may to be rent a dumpster and start tossing. Before you do, experts say it’s important to give family treasures and collections the “once over” before casting them off, donating or selling them.
As you’re wading through years of memorabilia, Audrey Thomas, certified professional organizer in the Minneapolis/St. Paul, Minnesota area and author 50 Ways to Leave Your Clutter, suggests first grouping like items to gain organizational control over the space. “It’ll be easier to know it’s OK to part with something when you see you’ve got several of the same, or similar, items.”
What’s it worth?
After you’ve formed groups or piles, it’s time to assess each item’s potential financial, emotional and spatial worth. There are no clear cut rules to do this, but Thomas suggests weighing a piece’s emotional value the heaviest. “Something may be worth peanuts at a flea market, resale shop or antique store, but be priceless to you,” she says, “and that’s something you may not want to part with.” You may run across items that may be monetarily valuable but don’t hold any sentimental value. A piece may take up a lot of space but be closely tied to fond memories.
One way to determine your emotional attachment and best seal the fate of clutter and memorabilia, Thomas recommends, picking an object up (if it’s too big to hold, look it over). “Ask yourself, “If I got hit by a bus today, what would I want to happen to this?”. Many times this one question helps you “release and relocate” things taking up space you no longer need.”
“Avoid making snap decisions on items handed down from generations or that hold significant sentimental value. You can always make the decision to get rid of it, but it’s nearly impossible to get something that’s discarded back,” she adds. This will help stave off a bout of seller’s or donor’s remorse.
X Marks the Spot
“Obviously you can’t hang on to everything, forever,” says professional estate coordinator, Cathy Rissler, president of Total Estate Solutions in Atlanta, GA. So once you’ve identified items that have a high emotional worth, it’s time to consider the financial value of your belongings. “That doesn’t mean you have sell or part with these things” says Rissler, “But it’s good to know what they’re worth to make sure they’re properly insured, preserved and protected.”
As you’re giving the piece the “once over” to assess its emotional value, look for clues that it may hold financial worth, too. Look for maker’s marks, signatures, labels and other identifiers of an item’s age, rarity or authenticity. “These things significantly influence value,” says Rissler.
Check the backs and bottoms of things like china, stem and flat ware, metal ware, like pewter and silver, ceramics and pottery. “You can check the prices of similar, new or used pieces at sites like Replacements.com. Just know this is not the price you’ll get upon resale (you can expect to get a little less because you have less overhead) but it provides a good idea of the approximate retail price. And keep in mind, size does often matter. “Serving dishes will sell more than dinner plates, which sell more than salad plates, etc.,” says Rissler. If you have the original box for flatware, china and serving pieces, that ups the price, too.
Jared Walker Dostie, carpenter and furniture designer on HGTV’s Rate My Space says the rich patina and aged look of old wood is invaluable. “Vintage furniture makers spend hours trying to replicate this look through a process called distressing. It’s time consuming and never truly duplicates nature so it can be easy to spot a reproduction.” For a starting point to determine the approximate age of a piece of yours, turn it over. If it’s screwed together, it’s newer, most likely late 19th to early-to mid-20th century or later. If it’s glued and tongue and grooved or has dowel rods holding things like table tops on, it’s an older piece. “Likely from the late 18th to early-to-mid 19th century,” Dostie says. And if you can pick the furniture up or move it with one hand, it’s newer. “Old furniture, because it’s made with heavy hard woods, is usually heavy and solid feeling,” Dostie says.
Another way to determine age of furniture is examining the wood’s grain. Science has sped up the growth process of trees and it now takes about twenty years to grow a tree to the size that used to take fifty or sixty years. “That technological advancement is evident in the growth rings,” Dostie says, “They’re farther apart in trees that are grown faster, leaving newer items without the tight grain pattern of old lumber.”
Dostie says most furniture manufacturers do stamp the pieces. “That’s another way to determine value.” If a piece has markings like a signature, label, serial number or a stamp, that’s the best way to date it and know what you have,” he says. And if the piece is signed or stamped, Dostie suggests giving it some TLC. “If the finish is worn or it needs minor repair, it’s worthwhile to have it restored. The piece will be worth more refurbished,” he says. And, even if a piece is in piece, don’t throw it away! Says Dostie, “You may still have some very valuable wood to work with that a carpenter of collector may want.”
Being in new, unused or in mint condition ups the value. Conversely, if it’s barely hanging together, has lots of nicks, cuts, scratches, chips, pieces missing, etc, that lowers the value. The completeness of an item is equally important. “Having all its accessories, parts, original paint or mechanisms, packaging and boxes, etc. increases the value, too,” Rissler says, “And collections and groupings, like stamps, coins, records and war memorabilia, are often worth more when keep as a set.”
Get a second opinion
If you suspect you’ve got a treasure trove of valuables, instead of “guess-timating” its value, or spending hours researching pieces on-line, you can consult a professional appraiser. “Look for an appraiser that follows the Uniform Standards of Professional Appraisal Practice, the generally accepted standards for professional appraisal practice in North America,” Rissler says. This will give you peace of mind that you’re getting an accurate appraisal.
When getting things ready for an appraisal, Rissler says in addition to checking certifications; make certain you are going to the right person. “Do not take coins to someone who specializes in western art. And, set a time limit for the appraisal since many charge by the hour,” she suggests, “It’s not uncommon to need several hours and opinions for an eclectic lot of personal treasures.”
One mistake Thomas says often made is trying to deep clean the basement, garage or attic in one day. “It takes years to collect that much “stuff”. It’s hard to purge it all in just one day.” Organizers and auctioneers also caution against purging items strictly for financial gain. “After the cash influx, sellers often regret parting with most items.”
According to a recent survey commissioned by Kijiji, an online classifieds web site, nearly 90% of American households have at least one unused item lying around at home, and over a quarter (26%) plan to sell them.
Those looking to sell their items online themselves (without the help of a broker or auction house) are considering doing so by pointing and clicking instead of plunking “garage sale” signs in their front yard. If you’re among the many first-time users are looking to sell items online, Franco Lagudi, founder and CEO of TheSOCExchange.com says here’s how to make the most of an on-line yard sale.
- Use a digital camera to photograph your items against a neutral background such as a large sheet of oak tag paper, or a light colored wall.
- Make sure there is plenty of natural light. Set the item (if possible) on a table in front of a window or outside.
- Use a close-up or macro setting if your camera has one. Some cameras even have a special setting for taking photos of products you want to sell online.
- Take several photographs of each product from different angles to highlight details which will be attractive to buyers.
- Take photos of any damage or wear for prospective buyers to best gauge the condition of the product.
- Read all the fine print and disclosures of the selling site. Some sites charge commission or listing fees for every product sold. And, those fees can cut deeply into your profits.
During your last visit with your aging parents, you may have noticed that Mom’s memory is lapsing, or Dad’s driving is more erratic. They may forget to take their medication, or they may have fallen over poorly-placed furniture or area rugs. They may need some improvements within their living space, or a change altogether, to improve their quality of life.
If your parent wants to remain in their home, or “age in place,” there are ways to de-clutter and re-organize their possessions to create a healthier environment. There are easy things that can be done immediately:
● Address safety issues. Remove area rugs, rearrange furniture, and add lighting. Install safety rails in the bathrooms. Make a list of the medications they’re taking and post it on the refrigerator door.
● Assess the home’s most frequently used rooms. Consider disposing of occasional furniture pieces to create wider walkways. Area rugs, a major tripping hazard, should also be put away.
● Window treatments should be cleaned to alleviate the dust which can aggravate respiratory ailments. Lightweight, semi-transparent curtains should be substituted for heavy draperies, to let in more natural, mood-enhancing sunlight.
● Sources of artificial light (table lamps, ceiling-mounted dome lights, etc.) should be added to aid those with age-related eyesight impairments.
● Spend a few hours in the basement or attic, and start to make piles -- “keep,” “donate,” and “discard.” Getting rid of unused possessions is less emotional when it’s a gradual process.
The prospect of downsizing your parents into a smaller home or assisted living can be daunting. If the decision is made to move, there are strategies to sorting through decades of collections in order to preserve important items and wisely dispose of the rest.
● Go through collections of old photos and home movies. After enjoying some time recalling happy memories, decide which images should be kept, converted to digital albums, or passed along to other family members.
● Take your own “stuff” home with you, such as old yearbooks and school memorabilia, toys and games, or clothing.
● Gently start a conversation with your parents about where they want their heirloom pieces to go. Take notes; it may help down the road to have a written record.
Fortunately, there may be local services available to help. Contact the National Organization of Senior Move Managers (www.nasmm.org), a nonprofit, professional association of organizations dedicated to helping older adults and their families with the moving process. Search their membership list for a local company credentialed as a Certified Relocation & Transition Specialist (CRTS).
While caring for elderly parents can be emotionally and physically draining, there are resources available to help you.
Caregivers Home Companion (http://www.caregivershome.com) has forums on their website to encourage communication between others facing the same challenges. Children of Aging Parents (http://www.caps4caregivers.org/) has published a caregivers’ guide on their website, as well as other resources.