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Dealing with Credit Score

by Rose Price

If you've been searching for a new Champaign, Illinois home then I'm sure you've heard the words "credit score" quite a few times. With the Illinois lenders tightening their requirements it is more important than ever.

You credit score is commonly referred to as a FICO score, and is a proprietary tool created by the Fair Isaac Corporation. This is not the only way to get a credit score, but the FICO score is the measure that is most commonly used by lenders to determine the risk involved in a particular loan.

Due to the proprietary nature of the FICO score, the Fair Isaac company does not reveal the exact formula it uses to compute this number. However, what is known is that the calculation is broken into five major categories with varying levels of importance. These categories, with weigh in brackets, are payment history (35%), amount owed (30%), length of credit history (15%), new credit (10%) and type of credit used (10%). All of these categories are taken into account in your overall score - no one area or incident determines your score.

The payment history category reviews how well you have met your prior obligations on various account types. It also looks for previous problems in your payment history such as bankruptcy, collections and delinquency. It takes into consideration the size of these problems, the time it took to resolve them, and how long it has been since the problems appeared. The more problems you have in your credit history, the weaker your credit score will be.

One of the largest components that is reviewed is the amount that you currently owe to lenders. While this category focuses on your current amount of debt, it also looks at the number of different accounts and the specific types of accounts that you hold. This area is focused on your present financial situation, and a large amount of debt from many sources will have an adverse effect on your score.

The other categories (length of credit history, new credit and type of credit used) are fairly straightforward. The longer you have a good credit history, the better. Of course, common sense dictates that someone who has never been late with payment over twenty years is a much safer bet than someone who has been only made on time payments for a few years. Also, people who apply for credit a lot probably already have financial pressures causing them to do so, so each time you apply for credit, your score gets dinged a little. Finally, a person with only one credit card is less risky than a person with 10, so the more types of credit accounts you have, the lower your score will be.

It is important to understand that your credit score only looks at the information contained on your credit report and does not reflect additional information that your lender may consider in its appraisal. For example, your credit report does not include such things as current income, debt to income ration, and length of employment. However, because your credit score is a key tool used by lending agencies, it is important that you maintain and improve it periodically.

Your credit score is a major factor when purchasing a home, especially in this tight lending environment. Contact me today if you have any questions about your credit score.

Rose Price, CIPS, CRP

Prudential Landmark Real Estate
Champaignrose.com

 

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Preparing for Down Payment and Closing Costs

by Rose Price
 

Now that you've found the Champaign Illinois home that meets your needs. It time to start making offers and getting ready for closing.

A generation ago, it used to be the norm to put 20 percent down, but with the real estate market in its current state of flux, many first-time homebuyers are finding ways to pay just 3 to 5 percent of the total cost upfront. Federal Housing Act (FHA) loans increasingly have become a popular option for first-time buyers, says Greg Herb, regional vice president of the National Association of Realtors. These competitively low-interest loans are ideal for buyers with less than perfect credit, and because the Department of Housing and Urban Development (HUD) minimizes the risk of default for lenders on these loans, borrowers are only required to put down 3.5 percent of the cost--a far cry from the traditional 20 percent down payment.

Still, there are advantages to paying more at the start. A larger down payment ultimately means smaller monthly bills down the line. Also, if you purchase a conventional loan (i.e.: one that is not backed by a federal agency), paying 20 percent or more upfront will eliminate the need to pay Private Mortgage Insurance (PMI) charges. PMI is insurance for your lender that can be paid upfront or in monthly installments, and is designed to offset your lender's risk in the case that you've paid less than 20 percent on your home. It can cost around $55 a month per $100,000 financed. While it's important to note that FHA loans also carry mortgage insurance with a down payment of under 20 percent, their low barriers to own still make them a good choice for first-time buyers.

Rose Price, CIPS, CRP

Prudential Landmark Real Estate
Champaignrose.com

 

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Sharing Closing Costs

by Rose Price

The last thing to do when you purchase a Champaign home is the closing,and some people don't know that you can actually split the costs. This is a time when the paperwork will be completed, and for the home seller it is the remaining mortgage balance and the agent's commission will be deducted from the sales price. However, many however don't figure in the closing costs that are involved as well. 

While the amount and who will be responsible can vary from state to state, typical closing costs refer to all of the taxes, fees and costs required to close a real estate transaction.

When selling your home, it is important to ask your agent for a breakdown of what you are expected to pay in closing costs as well what the buyer will pay. In most states the buyer and seller split closing costs but some states consider the buyer to be responsible or both parties can be required to pay the costs. 

Typically the person responsible for paying closing costs can be dependent on the market. For example in a market that is plentiful, the seller could have more of a chance in having the buyer pay the majority of the closing costs. But in a market that is struggling such as now, buyers tend to have the upper hand and many sellers will pay the majority of the closing costs in order to complete the sale.

Below are some of the common closing costs faced by sellers and buyers:

Escrow/attorney fees: Some states require third-party escrow companies handle real estate closings, while others dictate attorneys perform the function. Title companies, title agents, lenders, brokers and even real estate agents are allowed to handle closings and/or escrows depending on the state. These fees are usually split between the buyer and seller.
Title insurance: There are usually two types of
title insurance that must be purchased – the lenders’ policy and the owners’ policy. Usually either a title company or in some states a lawyer will research the title to make sure there are no liens against the property or unidentified owners. These policies protect the lender and new owner for the full value of the property. Usually, the seller pays for the owner’s policy and the buyer pays for the lender’s policy. This is often referred to as clearing title.
Transfer or documentary taxes: These are paid either to the state, county, city or a combination depending on the state. This is where the government agency gets their share of the transaction. This is also known as a reconveyance tax.
Recording fee: Usually paid to the county for recording the deed, which shows ownership of the property.
Mortgage tax: This is an additional tax collected by some states. Alabama, Florida, Georgia, Hawaii, Kansas, Maryland, Minnesota, New York, Oklahoma, Tennessee and Virginia are the states that collect this tax.

Brokerage commission: The fee you contractually agreed to pay for the selling of your home.


Aside from these costs, the seller may be responsible for costs such as any credits that were promised to the buyer for repairs or home warranties. Don't forget that Federal law requires that sellers and buyers receive a copy of a
HUD-1 form outlining all charges in a real estate transaction.

Rose Price, CIPS, CRP

Prudential Landmark Real Estate
Champaignrose.com

 

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How to Avoid Foreclosure

by Rose Price

Many Champaign home owners that have gone through a foreclosure process can testify that it can be a scary situation. I’ve heard some heartbreaking stories in the last few months. The foreclosure process is painfully personal and can be painfully fast. Do you realize you and your family can lose your most precious asset in just a few short months?

So what happens in a foreclosure--and when? The U.S. Department of Housing and Urban Development has prepared an easy-to-understand foreclosure timeline. Just to emphasize how pressing foreclosure can be, I’ve put that timeline into very human perspective below:

You miss one payment. You get a call or note from your lender. Not so bad, right? You’re just juggling the bills a little right now--no problem. You’ll pay as soon as possible. Not to worry.

You miss two payments. Your lender calls again. Where are the payments? You’re still trying to convince yourself that everything is OK, but you still can’t make the payment, either. Things have to get better, don’t they? You’re starting to worry, but you do nothing.

You miss three payments. You get a scary “Demand Letter” or “Notice To Accelerate” from the bank that says you must pay all the missed payments in 30 days. If you don’t pay or negotiate different arrangements, the bank can start foreclosure. Now you’re really worried, but you’re hoping it’s a bluff. Foreclosure takes forever, doesn’t it? So you again do nothing.

You miss four payments. You still haven’t paid or made other arrangements within that 30 days. The lender turns you over to the legal team, and now you’re responsible for all the legal expenses, too. Once again you do nothing--because you’re overwhelmed and terrified.

You get notice that your home will be sold by the Sheriff--and you’re in foreclosure. But it’s only been just a few short months! You’re told you can save your home if you make all the missed payments and pay all the delinquency costs. But where will you get all that money, and why would the lender accept other arrangements now? So you again do nothing. It’s too late!

You get one last chance to save your home. You can still keep your home even after the sale if you pay all the missed payments and all foreclosure costs. You can’t do it.

Your home is lost. Why? Because you didn’t take action to save it.

Although foreclosure may differ by state, this gives you a good idea of how foreclosure works--and how fast it can happen. HUD notes that a housing counselor could have helped even after the fourth missed payment. Doing nothing if you’re facing foreclosure is the worst possible thing you can do.

Doing nothing is not an option if you want to save your home. HUD advises that you be honest with your lender as soon as you suspect you’re in trouble. You can also contact HUD to find a housing counselor who can help. You don’t have to face foreclosure alone, please contact me if there’s anything I can do, I’m always available to assist with all your real estate questions, even difficult ones like this.

Rose Price, CIPS, CRP

Prudential Landmark Real Estate
Champaignrose.com

 

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Learn Ways to Make Your Home Affordable

by Rose Price

Are you finding that your Champaign, Illinois home is just becoming to costly? If you’ve never heard of this amazing website launched by the federal government, you better go check it out!  Making Home Affordable is a website that offers a variety of online tools that will help today's homeowner determine if they are eligible to participate in the “Making Home Affordable” loan modification and refinancing program. In this tough economy saving money anyway you can is key!

This site will show you how this program works and who is eligible for assistance. This is the same $75 billion program you may have heard about in the media. To see if it can help you, first have this information in front of you:

* Information about your first mortgage, such as your monthly mortgage statement.

* Information about any second mortgage or home equity line of credit on the house.

* Account balances and minimum monthly payments due on all of your credit cards.

* Account balances and monthly payments on all your other debts such as student loans and car loans.

* Your most recent income tax return.

* Information about your savings and other assets

* Information about the monthly gross (before tax) income of your household, including recent pay stubs if you receive them or documentation of income you receive from other sources.

* It may also be helpful to have: A letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.) if applicable.

There are many programs out right now including the energy tax credit, $8000 tax credit for first time home buyers, and long term interest rates lower than 5%. There is something for everyone it’s just a matter of knowing where to look.  

Check out these opportunities and see if any of them can help you or contact me to discuss your current situation.  Together we can find a solution to your real estate needs.

What are you concerns about home affordability in the Champaign Illinois real estate market?

 

Rose Price, CIPS, CRP

Prudential Landmark Real Estate
Champaignrose.com

 

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Is Seller Financing for you?

by Rose Price

With an increase in credit requirements, it can be tough trying to get a home loan. Even buyers who have excellent credit are having difficulties getting approved. On the flip side, many people that are anxious to sell their Champaign, Illinois home, can’t get qualified buyers to the closing table. If you are interested in taking out the middle man and controlling more of the process, you may want to consider seller financing.

If you have never heard of this before, basically the person selling the home lends the potential buyer the money to purchase the house. The seller becomes the mortgage holder and the buyer sends monthly mortgage payments directly to the seller. The transaction is usually completed using a promissory that states the interest rate, length and terms of the loan and default consequences.

In today’s market, sellers may need to get their homes sold quickly, and seller financing is a way to get the property sold faster – it opens up the market to more buyers and the paperwork process moves quickly.

Some advantages to doing this type of financing:

  • Faster closing – Sellers and buyers can avoid long waits for loan committee review, underwriting and legal review.
  • Lower Closing Costs – buyers don’t have to shell out additional money for bank fees and other closing costs associated with a traditional mortgage.
  • Flexible down payment – most sellers are willing to take less money down than lending institutions.

Of course this is not for everyone and many home sellers may not be in a position to where they can offer financing. On the downside, there is risk involved on both sides – the seller is taking a risk on someone who may have some shaky payment history or poor credit, and the buyer is dependent on the seller to have been upfront on the terms of the sale (like making sure that the seller’s lender approves the arrangement). As with any large transaction, especially a property purchase, both parties should consult with a real estate attorney and financial expert to make sure that the transaction is legal and is financially sound. If you are ready to buy and can’t find a lender, seller financing may be worth checking out!

For more information or if you're looking to buy or sell your home using seller financing, Contact Me Today!

 

Rose Price, CIPS, CRP
Prudential Landmark Real Estate
Champaignrose.com

 

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Your Credit Report

by Rose Price

Having your credit report is an important step in buying a Champaign, Illinois home.  You should know your credit report before your lender views it. You can get the information by calling and requesting it. Once you have the report in your hand, check the “high credit limit”, total loan,” and “past due” columns.  It is a very good idea to get copies from all of the reporting agencies. 

Credit reporting companies:

Experian (800) 682-7954 www.experian.com

Equifax (800) 685-1111 www.equifax.com

TransUnion (800) 888-4213 www.transunion.com

You can also get a copy of your credit history at the following online locations:

http://www.transunion.com

www.creditreports.com

What if I find a mistake in my credit history?

You can correct simple mistakes by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems.

For example, if you made a payment late due to illness, explain that for the record. Lenders usually understand about legitimate problems.

What about my overall (or FICO) score?

What does it mean? Prior to the late 1990's, credit scoring had little to do with mortgage lending. When reviewing your credit worthiness, an underwriter would make a subjective decision based on past payment history. Then things changed.

Lenders studied the relationship between credit scores and mortgage delinquencies and found a definite relationship. Almost half of those borrowers with FICO scores below 550 became ninety days delinquent at least once during their mortgage. On the other hand, only two out of every 10,000 borrowers with FICO scores above eight hundred became delinquent.

When can I stretch the percentages?

In the  Champaign housing market, lenders sometimes will allow you to stretch their allowable debt ratios. One of the best ways to encourage your lender to do so is to increase your down payment.

 Underwriters sometimes also will stretch the ratios for other "compensating factors," including:

  • Strong cash reserves after close of escrow
  • New payment that’s only slightly higher than current rent or mortgage payment 
  • History of increasing earning capabilities 
  • History of an ability to save money 
  • Large cash down payment

 Contact me today to check out what's available in the Champaign Urbana area!

 

 

Rose Price, CIPS, CRP
Prudential Landmark Real Estate
Champaignrose.com

 

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Four Short Sale Myths

by Rose Price

The nations economy has been faced when financial challenges, and Champaign, IL has been affected as well. This has unfortunately has made foreclosures and short sales common place in today's real estate market. Even though it's very common to see short sales and foreclosures on the Champaign, IL market, much of the information regarding these types of homes is outdated or simply untrue!

Here are some of the top misconceptions of short sales:

Short sales can take up to a year to close. This is simply not true. It can take 7-10 days for the lender to acknowledge receipt of the complete short sale package, which consists of personal seller documents and related real estate items, including the buyer's short sale offer. Once a negotiator is assigned it can take an additional 30 to 45 days for a BPO or appraisal. After this has been completed usually another 2 to 3 weeks for management / investor review and short sale approval.

If you purchase a short sale, you will end up paying too much.  Some listing agents may set a short sale below market value, this is a tactic used to attract multiple offers. Remember that a listed price on a short sale is fabricated, because you won't know how much a bank will accept until the offer is submitted. However, most banks will consider a price at a minimum of 90% of market value.

Lenders of a short sale won’t accept a discounted payoff. Many sellers are often surprised to learn that in markets where prices have fallen over a 5-year-period, a home might be worth 50% or less of its original value when the seller bought it. Lenders know about these declining markets and will do their own research about value and typically come to the same conclusion. The value of the home is not based on the amount of the mortgage; it's based on recent comparable sales.

Short Sale Sellers Must Be in Default Before the Bank Will Approve a Short Sale. The lender will approve a short sale based on the seller's hardship and the value of the home. Many sellers may struggle to make the monthly mortgage payment, but have not fallen behind in their payments. It is true that sellers in default receive immediate attention, but a seller can also pay a mortgage payment on time each and every month and still qualify for a short sale.

Do you have questions about a short sale? Contact your premier Champaign IL real estate professional today to see if this type of purchase is a good fit for you and your family!

 

Rose Price, CIPS, CRP
Prudential Landmark Real Estate
Champaignrose.com


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Tax Deductions for Home Owners

by Rose Price

Most of us don't look forward to tax season, but if you own a home in Champaign, IL, you may be eligible for some tax breaks! Since you don't want to miss out on any home-related tax deductions, you'll want to meet with a tax advisor or use a tax program to find out which deductions you can claim. Here are some of the more common deductions that I would like the residents of beautiful Central Illinois to be aware of:

Mortgage Deductions.The interest you pay on a home mortgage is usually tax-deductible. Every year, you should receive a “Form 1098” from your lender which details how much mortgage interest you paid. To claim this deduction, you need to fill out “Schedule A”, under “itemized deductions” to record your interest deduction. These deductions can also include late payment charges and pre-payment penalties.

Moving expenses. If a move is connected with taking a new job that is at least 50 miles farther from your old home than your old job was, you can deduct some of the expenses for you and your family and the cost of moving your household goods.

Deducting Real Estate Taxes. Real estate taxes are deductible in the year paid. They are generally reported on Form 1098, Mortgage Interest Statement, the annual statement from the financial institution holding your mortgage, or on your county real estate tax assessment statement. You should also deduct any prorated taxes collected from you at closing. These amounts are not always included on Form 1098, but may be itemized on your real estate closing statement.

Business Use of Your Home. If you are a homeowner who uses any portion of your home for business, from daycare to home office to rental property, you can take a deduction for business expenses.

Of course, tax deduction change every year and you may be able to claim deductions that you weren't even aware of! To get the most out of this tax season contact a professional tax advisor.

Are you ready to buy your dream home in Champaign, Illinois? You could claim these exemptions and deductions next year! Contact me to start your search!

 

Rose Price, CIPS, CRP
Prudential Landmark Real Estate
Champaignrose.com


Rose Price, CIPS, CRP

Prudential Landmark Real Estate

 ChampaignRose.com



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Hidden Benefits to Buying a Home

by Rose Price

If you have been thinking of buying a home, chances are that you have asked yourself the standard questions: Have you saved enough money for a down payment? Can you afford the expenses associated with owning a home? Are you going to stay in the home for a short period of time or is this home a place you intend on living in for years to come? Can you qualify for a mortgage?

There is alot to think about and if you are considering the benefits of home ownership, some of those benefits are missed by homebuyers when considering their options.

Tax deductions when you own a home

Mortgage interest tax deduction. First-time homebuyers may be pleasantly surprised when they file their personal income taxes after they purchase a home as their primary residence. The interest payments they have made to their lender are fully deductible. When you start making mortgage payments, almost the whole loan payment consists of interest. In the early years, you pay little principal back on the loan. If you have an equity loan on that primary residence, you can also deduct interest paid to the lender on loans up to $100,000.

Property tax deduction.

In addition to the mortgage interest tax deduction, you can also deduct on your federal income taxes your real estate tax payments associated with your primary residence. IRS Publication 530 has more information about how to deduct your property taxes. And, for now, it seems that Congress will continue the mortgage interest tax deduction and the real estate property tax deduction.

Buying a home with extra perks

Buying a historical property. Buying a historical home has its pros and cons. You may be able to buy a home with history and heritage, but you may have to pay quite a bit more to renovate and keep up with home maintenance. If your historic home is in an historic district, you may have other limitations on what you can do with your home and how you must maintain the home. There may be a federal tax credit and state tax credit available to owners of historic property. In some parts of the country, if you own a historic home, you may be able to get a real estate tax benefit from your local tax assessor’s office. Thirty states now offer state rehabilitation tax credits for historical properties. Keep in mind that you may have to comply with certain building standards to keep and maintain historic property to receive a tax benefit. If you’re willing to put in the work to maintain a historical home and restore it to its original beauty, you may benefit financially. Start your search for a historic home with the National Trust for Historic Preservation.

Buying in a community targeted by state or federal governments for redevelopment.

One of the most important rules of real estate is Location, Location, Location. In some cases, you can benefit by finding a neighborhood that has the backing of the federal or state government. Some government agencies will give lenders incentives to have them lend money in certain communities and neighborhoods. If you can qualify for these benefits, you might find that the interest rate on your loan is below market or that some of the closing costs associated with your purchase are covered by the lender or the governmental agency. The Community Reinvestment Act is a federal law that encourages lenders to meet the needs of borrowers in low- to moderate-income communities and the location of some of these properties can be targeted under specially designated census tracts. Talk to your mortgage broker or real estate agent to find out if you can look at homes in these census tracts.

Additional benefits of home ownership

Building Equity. At the beginning of the life of your loan, you will be paying most of your payment to interest. But every month, that balance will shift and you will be paying more of your payment toward principal and less to interest. Instead of paying rent to a landlord, you will be making the payment toward your investment in equity. While the last decade has not been a good one for homebuyers, historically, when you make your monthly payments, you will find that your loan balance decreases and you increase equity in your home.

Freedom of being a homeowner. If you look at rental listings you might find such criteria as “no pets” or “no painting.” Owning your own house gives you the freedom to make your home into whatever you want it to be, and the satisfaction that comes with building a home. You can make changes and upgrade your home, building more of an investment in your future and being the king or queen of your castle.

Owning a home is a big step and you should think carefully about what home you purchase for you and your family. Do you still have questions about owning a home? Contact me!


 

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