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Can I Buy Furniture While Applying For A Mortgage?

Image 61Almost every home buyer wants to buy new furniture to put in their new home. Commonly asked is whether or not it’s okay to buy furniture while applying for a mortgage. See Joe’s question below.

Dear John,

Question:

We paid off two credit cards. We owe $1,500 ($7,500 limit) on one we have left and $400 ($6,000 limit) which this one is paid off every month. Would it be okay to buy furniture that costs $1700 (on a card that has $4,700 limit)? We just don’t want to screw anything up. Let me know your thoughts.

 

Dear Joe,

I understand wanting to buy new furniture before you close on your new home, but you’re applying for a mortgage and still under scrutiny by Underwriting. I can’t recommend adding any additional debt.  The variable is how the monthly payments will report.  Even though you pay a card down, the minimum payment will not be reduced proportionately.  And even if you pay it off, the credit report will still show a minimum payment to be counted into the debt to income ratio.

As for the new credit: just applying for it will lower your score, and I am not sure how they will report their minimum payment.  Remember, merchant credit cards always damage your credit scores and you should always avoid merchant accounts.  It is the only type of credit that the balance is always assumed to go up every month, until several months are reported and a conservative debt pattern on your part is established.

While you are applying for a mortgage, you want to maintain the lowest amount of debt possible paired with the highest credit score possible.  Neither of these can happen if you buy furniture while applying for a mortgage.  I don’t know that buying furniture would be a deal breaker but it would definitely worsen your credit profile.  If you have to have it let me know and I will spend some time figuring how we might pull it off. I don’t want to be the bad guy but most likely it will hurt us.
You’re getting an awesome home, Joe. Buy your new furniture the day AFTER closing. You can sit on milk crates like you did in college until Mathis Brothers delivers.  -John

Posted in: First Time Home Buyers

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Tulsa, OK, Condos Appreciate Faster than Comparably Sized Houses

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Tulsa, OK, Condos Appreciate Faster than Comparably Sized Houses

A condo can be a great retirement investment if you let a renter pay for the equity on your behalf.  It is the only retirement investment I can think of where you can get someone else to make your entire monthly contribution.  I don’t know how to teach you to get someone to buy you an annuity or IRA, but I do know how to collect income streams off of real estate.  Next to employer matched 401k’s, Condo income-streams, for me, are a strong recommend.

Condos are making a comeback.

Income – Costs = Profit

Condos have better fixed costs than rental houses.  The maintenance expense is minimal, condominium property insurance is a slightly more expensive than renter’s insurance, and real estate taxes are thinned by the quantity of units.  This is a sexy investment.  Some are high-rises looking over rivers and downtowns.  Some are nestled in tree-lined greens of common area.  There is a Tulsa, OK, condo that is built in a public park.

Condos are appreciating Faster

As compared to one year ago, condo values are appreciating much more aggressively than single family residences (reference to the  Case-Shiller Index).

Five years ago, condominiums were among the most distressed sectors of the United States housing market.  Investor’s had bailed out on depreciating assets, and condos became more and more unwanted.  As condo unit owners stopped paying, their condo associations became under-funded, and unable to pay the unit’s common-expenses.  Many complexes failed, and values diminished.

Opportunities in the market

Tulsa, OK, condominiums are making a comeback.  Today, along with the revival of urban living, the condo lifestyle is becoming more popular. And many are virtually maintenance free.  Condo developements represent one of the best places to find real estate, and potential future cash streams, at “good value” prices.  Whether as an owner-occupied residence or as a rental income stream for life, there are opportunities in the market.

To get interest rates and costs for condo financing, click here.

For HUD approved condos, click here.

 

Posted in: Condos, First Time Home Buyers

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How Are Credit-Score Points Earned?

FICO ScoresHow Are Credit-Score Points Earned?

The official FICO scoring model runs from 300 to 850 points.  But your score will very based on the type of credit you are applying for.  There are differing score-models for each type of inquiry:

(in order of risk preference)

  1. Credit request for a mortgage – BEST
  2. Credit request for a car loan
  3. Credit request for a credit card account
  4. Credit request for a store credit card or consumer loan – Worst

Mortgage and Auto Loans are considered more positive because the debt they create will reduce as monthly payments are applied.

Credit requests for credit card loans usually hit the scores the hardest.  This is because the debt balance is expected to go up every month until there is enough account history to show otherwise.

Once a negative condition hits your credit report, the damage is done. Paying a collection account will not regain the points you have lost.

Credit Score Breakdown

65% is tied to 2 things

  1. Payment History
  2. Credit Utilization
  • The amount of money you are borrowing and whether you are paying your creditors back is the primary source of high credit scores

15% is tied to the amount of time you’ve had credit in your name

  • The more time you have spent managing good credit the higher your score will be
  • First time borrowers bring an added layer of risk

10% is scored on the type of credit used

  • Auto loans and mortgage loans are scored as a positive.
  • Credit Cards are negative.
  • Pay Day loans almost ensure credit score deficiency.

10% is scored on a category deemed “new credit”

  • This is an assessment of the most recently opened accounts and the types of credit that have been applied for.
  • It also scores on how long it has been since you opened an account.
  • At the maximum this category is worth 85 points to your FICO.

A mortgage credit inquiry will lower your credit score by 5 points.  You can have as many mortgage credit score inquiries as you want for 14 days and you will only receive one reduction for 5 points.

Posted in: Condos, Credit, First Time Home Buyers, For Buyers, Household Finances

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Tulsa, OK HUD Approved Condos

Tulsa CondominiumTulsa, OK HUD-Approved condos are hard to Find.

Tulsa OK HUD-Approved condos are hard to find. What does this mean for Tulsa condo owners trying to sell their condo?

This is a HUGE concern for Tulsa condo sellers, particularly if their condo is priced $250,000 or below. Not being able to accept FHA, VA or Section 184 Indian Loans literally removes 95% of prospective Buyers. How long will your Tulsa condo be on the market if you have to wait for a cash buyer or one with conventional financing with 20% down? Cash buyers expect a deal and may not be willing to pay fair market value. Buyers with conventional financing and 20% down are not usually shopping in the lower price ranges – OR do not want to tie up their cash on a large down-payment when it’s so inexpensive to borrow money.

And none of these loan programs (FHA, VA or 184) are available if the condo property is not HUD approved.

HUD Certified condominium complexes offer distinctive advantages over Non-Certified properties by qualifying for:

  • Lower down payments
  • Section 184 allows for 97.75% financing without monthly mortgage insurance
  • VA allows for 100% financing without mortgage insurance
  • 6% seller contributions are always available (conforming loans on condos usually allow only 3%), which equals less costs at closing for the buyer
  • Debt to Income Ratios and credit underwriting are much more lenient
  • You can borrow up to 110% so you can purchase and remodel in one loan
  • You can do an energy efficiency loan to replace windows, appliances, water heater, doors, etc.
  • Down Payment Grant Programs and Bond money most often amend FHA loans (click here for condo down payment assistance program)
  • Owners can be selling to a larger portion of the home buying market
  • It increases demand

Get an FHA Condo mortgage quote here

So what is HUD approval?

HUD oversees the FHA mortgage program, the VA sponsored program (100% financing) and mortgages back by the Bureau of Indian Affairs (checks and balances).  Since 2009 HUD has required condominium complexes to be “warranted” to be accepted for HUD mortgage programs.  This generally means an audit needs to be done to make sure the common areas are maintained, the complex is fully insured, association dues are 85% current, mostly owner occupied, the association is controlled by unit owners, etc. – mainly: just being well managed.

So Why are HUD Approved Properties hard to find?

Up until 2009, HUD allowed FHA mortgages to be placed on condo units through a process called a “spot check”.  That meant they would gather papers from the condo complex in a random, per-transaction method, and approve the quality of the complex on each individual loan.  This was inefficient and FHA absorbed many foreclosed loans due to condo association failures.

Then came 2009.  HUD does not allow spot checks any more.  The complex must get certified.

How To Become a HUD Certified Complex?

HUD is pretty friendly when it comes to approving well-managed properties.  They want to promote urban growth and are rebuilding their HUD approved roster.

The Distinction of Certification comes from one of two ways:

Go to HUD Directly – Called a HUD Review Approval Process (HRAP).  The process, if done well by you mortgage consultant, should take 6-8 weeks.  The application itself is free, but self-managing the process is not wise for amateurs and in reality fees will be paid to attorneys, management companies, appraisers, etc. to prepare the finalized application.

Use a HUD Direct Endorsed Lender – Called a Direct Endorsed Lender Review Approval Process (DELRAP).  Now a HUD direct lender is not the same as a lender that offers FHA mortgages.  Contact me to avoid middlemen and get one in your area.  This recommended route would usually take approximately 2-3 weeks.  DELRAP generally costs on par with a HUD direct approach but the process is faster and moderately more stream lined.

We will need some basic Condominium Association Documents:

  • The Declaration of Condominium, CC&R’s (Covenants, Conditions & Restrictions)
  • By-Laws of the HOA with (if applicable) amendments
  • Copy of the Current Annual Budget
  • Insurance Certificates held by association which should include General Liability and Hazard on Common Element Buildings
  • 90 days balance sheet

I can get you there.  Condo associations should usually be protecting the interests of the owners by keeping the condo development HUD-Approved.  This will increase the number of buyers who can purchase units in the development, which in turn increases the demand to buy into the development and helps support property values.

If the article doesn’t answer all of your questions, please don’t hesitate to drop a question in the commentsor for direct communication, please call me at 918-949-7248.

 

Posted in: Condos, FHA, First Time Home Buyers, For Sellers, Mortgage Types, Section 184 Indian Loans

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Household Budget Detox

Household Budget Detox

Budget

The other day, while reviewing a mortgage application, I was told by the applicant about their 30 day juice diet.  My client had bought a $400 juicer and everday had 3 huge glasses of vegetables and fruit – mostly kale, carrots and apples – and that’s it; they ate nothing.

Why would anyone ever do this?

“To detoxify and loose a bunch of excess weight”, they replied.

Ok, that sounds like a good reason, but as their mortgage advisor I wanted them to take a similiar approach toward their spending habits and household finances.

So how would you detoxify your household finanances and loose a bunch of excess expenditures?

Click here for an simple to use spreadsheet.

Work Within a Budget – We all have probably made one before, but have you ever “worked within one” by reviewing and updating it consistently?  This means simply having a spreadsheet that you record into and review at a steady pace.  You don’t have to track every detail.

Start with a flow chart to classify expenses:

  1. Necessity – fixed payments and not flexible.  Examples are housing payment and car payment.
  2. Necessity but Flexible – can be adjusted.  Examples are utilities and food.
  3. Discretionary – expenses you want to make.  Examples are haircuts, supplies, dry cleaning and entertainment.

Now the hard part:  start slashing items in column three and search for ways to trim column two.

Use automated tools to execute your budget.

  • Use your bank’s bill pay service
  • Set up automatic payments
  • Use bank’s transfer service to put money into savings
  • Pay with debit card so you can track expenditures
  • If you get cash divide the money into envelopes and write the purpose on the envelope

Use the 10/10/10 Savings Rule on every paycheck.

  • 10% saved for short term needs – vacation, birthday/holiday gift giving
  • 10% saved for intermediate needs or emergencies – car trouble, loss of job
  • 10% saved for retirement or real estate investment

Have an accountability partner.  Accountability is in direct proportion with effectiveness and success. Use a family member, close friend or partner to back you up and help you stay on track.  If your finances are more complicated, use a software program, Certified Public Accountant and/or Financial Planner.

A budget can get you there.  The key to these ideas is to have a reasonable budget to begin with, sticking to the process and reviewing results.  If your money problems are too serious to fit your budget seek professional help immediately by contacting a non-profit credit counselor (a church or United Way).

If the article doesn’t answer all of your questions, please don’t hesitate to drop a question in the comments, or for direct communication, please call me at 918-949-7248.

Posted in: Company News, First Time Home Buyers, Household Finances

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