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Repairing Bad Credit

Repairing Bad Credit – Most Ignored Big Wins

In today’s day and age, credit is more important than ever. Good credit history can save you thousands when making large purchases and sometimes be the difference between a yes and a no. It isn’t a matter of if you will buy a car or home (or boat, helicopter, jet airplane, etc) but when. If you haven’t made a large purchase before then your credit score may not be in the forefront of your mind but it should be.

We are here to tell you real money savings occur over time by having excellent credit and can create real opportunity for your financial well being. It can be boring to look at the numbers for those who don’t nerd out over finance and mortgages, like us here at O2, but were here to help. By taking the right steps, good credit can be worth over $100,000 to you over time.

If there are two individuals both in their thirties looking to buy a home within the same price range, the difference being one has excellent credit and the other bad credit, the borrower with poor credit will pay over $172,083 more then the borrower with excellent credit (see below).

interest credit table

So what if you don’t fall in that excellent or even good category and you are getting ready to buy a home…. Do you accept your not good credit and continue to save for a down payment…

We Say NO!

It is better to repair bad credit then to have bad credit and save!

Taking some time over 3, 6 even 12 months to improve your credit can make a big difference in the type of interest rate and programs you can get.

Here are three easy and effective first steps, You can do TODAY that can get you on your way to improving your credit….

Automate all your Credit Card Payments

35% and the largest portion of your credit score reflect your payment history. Automatic payments cut out having to remember or keep track of paying credit cards on time. Any late payments can severely drop your credit score. Cut out the worry and have payments set up automatically. In an ideal world you want to pay off your entire credit card balance each month, but if you can’t you will still improve your score by at least paying the minimums on time.

 

Paying Off Debt

Make a plan that is realistic to chipping away at your debt each month and stick to it. This might take some time. There are two schools of thought when paying off your debt:

  1. Payoff the debt with the highest interest rate first
    1. Mathematically and financially, this makes a lot of sense. As you reduce your balances, the debt you still owe will cost you the least so more of your money can go to paying off your debt
  2. Payoff the debt with the lowest balance first
    1. Psychologically, paying off the lowest balances first will give you quick wins. You’ll payoff something fastest this way and get the satisfaction early on, giving you momentum to keep it up.

Ultimately, as long as you decide on a plan and stick to it, you’ll be in good shape!

 

Keep Old Accounts Open

 History is a very important. The longer your open credit accounts are reporting the better it is for your score.  Look at it this way, two people have never missed their payments and pay their credit cards off every month. However, one has been doing this for 25 years and one for 25 weeks, which is more likely to continue doing so?

Drew’s Tip: I got my first credit card when I was a teenager. I had no credit to speak of and therefore had to put down $500 as collateral and I was given a $500 credit limit. I paid on time and slowly built my credit. I now have credit cards with $20,000-$30,000 limits, however, that first credit card I still have open and for some reason only has a $750 credit limit. If I never use the card, eventually the credit card company might decide my business isn’t worthwhile and cancel. Therefore, I charge my reoccurring $9.99/mo Netflix.com account to the card each month and subsequently auto-pay the card. It never leaves my desk drawer and I never have to think about it.

Remember improving your credit score is a marathon not a sprint. Give yourself some time to plan ahead.

 

 

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7 Keys To Shopping For a Home Loan…The Correct Way

Shopping for a mortgage is not like most things you shop for and most likely, you’re probably doing it wrong. Believe us when we say, we’ve seen it done every manageable way, from clients calling in multiple times under different names, to people who seem to have given up before the process had ever begun.  We think mortgages are tools to get you your dream home and because of that, we think mortgages are fascinating.  We’re also a little weird but if you’re new to mortgages or feel you did it wrong in the past, follow along, most of the keys below are intuitive but the reasons for them are not always.

Begin the list…

 

 

Key # 1:

START EARLY!

 

It is never too early to start the loan pre-approval process. If you are thinking of buying a home talking to a loan officer early can get you on the right foot. Waiting till you are in contract is too late because once you’re in contract, the clock starts.  You have only so many days to get the approval, appraisal and property inspection before you risk loosing your deposit.

Starting weeks, months or even years ahead of when you think you will be ready can help you dramatically. No, a year is not too early to start the process? Yes, a year is a long time for a lot of things but if you find out you need to work on your credit, or save for more downpayment it may not be as long as you think.  As well, if you do begin the process extremely early you can build a plan.  When it comes time to buying you’ll be ready and not be forced into a loan program that’s not optimal.  As well, you might find out your dream of buying a home is much closer than originally thought.

 

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Image Credit Pexels

Key # 2:

DO YOUR HOMEWORK

 

Talk to friends and family who have gone through the loan process and find out who they worked with, what their experience was and if they would recommend someone.  (Warning: as soon as friends and family find out you’re looking at buying a home be prepared for an onslaught of unasked for advice)

Research online.  Websites like Yelp, Google and industry specific sites like Zillow, Redfin and Trulia (to name a few) can help with reading about other clients experiences. The trick is to look for a common theme with reviews, everyone’s situation and experience is different.  You are about to give a stranger a lot of personal information and then place your trust (and your deposit) in their hands.  Make sure they’re trustworthy.

 

Key #3:

LOAN OFFICER + REAL ESTATE AGENT = GOOD TEAM WORK

 

Both your loan officer and real estate agent are working for you.  Make sure they will work well together. Like starting early, if your loan officer and agent are on the same page they can be strategic when drafting up an offer.

In this day and age, speed is a big part of getting your offer accepted. If your loan officer and agent are aligned they can get competitive on how quickly you will close, as well as how quickly you will receive a loan approval as well as your appraisal (very big things and a large concern for the seller).

 

Key #4

PRE-QUALIFIED VS. PRE-APPROVED 

 

These terms are used loosely but to define these them:

Pre-Qualified: You have gone through the first stage of the process of having an initial conversation with your loan officer and you have been qualified (from answering some basic questions about your situation). Based on this conversation, your loan officer has given you a ballpark rate and program. Note that this is does not mean you are pre-approved.

Pre-Approved: You have given your loan officer all of your financial information – tax returns, W2’s, pay stubs, bank statements, hard pulled your credit, as well as ran a stress test to make sure that once you are in contract there will not be any unforeseen issues. At this stage of the process you have run through many different options and have more or less the foundational understanding of what you plan on doing financially.

Get Pre-Approved…a pre-qualification letter isn’t worth the paper it’s written on.

 

Key #5

 CAN A LOAN OFFICER HELP ME GET INTO CONTRACT?

 

Photo Credit Mark Moz

Photo Credit Mark Moz

The answer is YES! Gone are the days you see a home in the newspaper, offer what they are asking, shake hands and move in. The market is much

more competitive but with a good loan officer with a reputable company they can take actions that will set you apart from any other buyer such as…

  • Calling the listing agent – This is surprisingly effective. It costs no money and listing agents love this.
  • Being local helps – Real estate is a local industry. All the national companies and online lenders can not take away the fact that real estate is local.  Having a local loan officer, with a local company means all the world to a good listing agent.

What’s great about a loan officer who will go the extra mile when making an offer is that none of these things cost you any money!

 

Key #6

QUALIFIED OR AFFORDABLE!!

 

There is a lot of information online, but you really want a loan officer that will have a conversation about what you qualify for as well as affordability too. This is something that unfortunately is not talked about enough.  Being in the business since 2006, we saw a fair share of foreclosures and short sales since then. Everyone qualified one way or the other for the loan they defaulted on, they just couldn’t afford it! This is crucial! You don’t just want a human calculator but a partner in the process with you.

You want someone who will tell you the tax benefits, talk about your future plans and work with you and your team to guide you in making the best financial decisions for your future!

 

Key #7

THE TRUTH ABOUT RATES AND FEES

 

Yes, competitive rates and fees are important but it is not the end all be all. You want to make sure that the person you are working with is competitive, however, it is very hard to compare rates for a myriad reasons…here is why:

  • Rates Change many times a day. You talk to one person on Monday afternoon and another on Tuesday morning they will be looking at two different rate sheets.
  • An apples-to-apples comparison is very hard unless you are an industry insider. It is very hard to read between the lines with generic posted rates. Rates posted online or in a banks window are not YOUR rate, they are just A rate… these are very different things.
  • Rate is not just affected by loan amount and credit. A good loan officer will not only find the right program but they will give you advice on the different ways you can get a better rate.  
  • A good rate on the wrong day is not as good as a bad rate on a good day. Ask prospective loan officers what their lock bias is (i.e. when the best time to lock in your interest rate). 
  • Rates never change, it is the fee associated with them that change. Everyday a loan officer has the same rates, 2 to 20 percent. It is, however, the points associated with the rate that does change. You can buy points or sell points. A rate with no points either bought or sold is called a “par” rate (meaning zero points either positive or negative). Buying points is you buying down the rate. If my hypothetical “par” rate today was 3 percent and I could buy the rate down to 2 percent by paying a fee. Or you could sell points that means if my hypothetical rate was 3 percent, you could take a 4 percent and the lender would pay you (by way of paying your costs) for taking a higher rate.

If it sounds complicated that is because it is and getting granular about this prior to being in contract is rather pointless since these numbers change moment by moment and you need to work with a person and company you trust.

Photo Credit Mark Moz

Photo Credit Mark Moz

 

Shameless plug:

 

If you are looking for someone to partner with you – O2 Mortgage has the people you want to team up with. For all the reasons listed above, let us be your partners in taking the steps into your next home mortgage.  

Start a conversation with us.  Go to o2mtg.com/get-started/

cancel mortgage insurance

How to cancel your mortgage insurance

One of the first questions I ask someone who is interested in buying a home is ‘how much are you planning on putting down?’.  This one question will tell me what type of loan program to offer and whether or not they will need mortgage insurance.  Mortgage insurance started back in the 1880’s in the US and by the 1950’s it had taken it’s modern form that we see today. The modern day american mortgage insurance policy insures the first 20% of the value of the home.  If the homeowner defaults on a mortgage with mortgage insurance, the lender will be made ‘whole’ by the mortgage insurance company.

 

Again, what is mortgage insurance?

Mortgage insurance exists not to protect you, but to protect the lender.  Any time you put less than 20% down on a home you either have to pay mortgage insurance (or split the loan into two separate loans – called 80/10/10).

So, why the heck would someone get mortgage insurance?

The reason you’d get mortgage insurance is because you don’t have, or prefer not to, put at least 20% down when purchasing a home (however, some loan programs require mortgage insurance no matter how large the down payment). In essence, you are covering the extra risk the lender is taking by paying an insurance policy that makes the lender ‘whole’ if you default on the loan.

 

How to get rid of it?

One of the easiest ways to get rid of mortgage insurance is to refinance your current loan into a loan that does not require mortgage insurance.  However, refinancing your home may not be the best scenario if the interest rate would be higher, terms would be worse, or the cost of the refinance is not economically feasible.

Another option would be to ‘cancel’ the mortgage insurance.  First, you’ll need to figure out what type of loan you have:

The two most common loan types (with mortgage insurance) are: 

1. FHA

2. Conventional

If your loan isn’t FHA, then most likely it’s conventional.  If it is conventional, you’ll need to figure out what agency underwrote the file – Fannie Mae or Freddie Mac.  You can do so by checking Fannie Mae’s and Freddie Mac’s lookup site, here and here.

Once you have figured out what type of loan you have (and if conventional who underwrote it) see below on how and when you can cancel your mortgage insurance:

FHA

If your FHA Case Number was assigned on or after June 3rd, 2013 cannot be canceled unless the down payment was 10% or more.

If your FHA Case Number was assigned before June 3rd, 2013 your mortgage insurance will cancel once the loan reaches 78% of the original purchased value AND you’ve paid mortgage insurance for at least 5 years.  The exception to the 5 year rule is if you have a 15 year loan, then no time minimum is required

Conventional

If your loan is conventional and you have mortgage insurance, things get a bit more tricky.

Conventional PMI Cancelation

Day 1: O2 Mortgage

OXYGEN

Day 1:

It’s a funny thing to have a day one.  We’re a 10 year old company.  I started with the company back in December of 2008 and the company had started two years before that – in ’06.  Yet, today is our first day in business.  Why?

 

We decided to rebrand.

 

We were moving into a sleek new office, with new furniture and new glass walls and decided it was time to change.  In our small corner of the world we had accumulated small drawer full of awards but even so…or maybe because…we knew it was time to reinvent ourselves.  We need to grow, to continue to push us to be the best for ourselves, our clients and our community.

 

Today, we open business as O2 Mortgage.  You can breathe a little easier!