Real Estate Purchases and Credit Scores

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Among the most important requirements a prospective home buyer has to meet in order to qualify for a mortgage loan is a satisfactory credit profile; and when a credit report reveals a less than satisfactory profile, it usually means that the prospective home buyer must take steps to find out why. It is at this time that the credit specialists at North Shore advisory should be consulted.

Here is another informative and insightful guest post from our friends at North Shore demonstrating their depth of knowledge in the field of credit reporting. Enjoy!

Real Estate Purchases & Credit Scores: What Should Bankers, CPA’s, Realtors, and Attorneys Know?

Now that the real estate market is on the rise and interest rates are moving upward it is time to focus on buyers in regards to credit and scores. Although borrowing money has become more costly rates are still very low historically. As the economy crashed high Fico scores (above a 740) became crucial in a purchasers ability to get loan approval or the lowest rates available.

This means buyers with high scores may be able to qualify for a larger mortgage which could equal a better school district, a bigger home, or less cost for the same loan creating more savings. All of this leads to a better quality of life for the buyer.

Here is an example:

Having a 740 plus credit score when purchasing a $960,000 property with 20% down may cost the buyer $4113 a month in mortgage payment. The total price of the loan over 30 years equals $1,480,730.00. Having a score a bit lower than 740 for the same $960,000 property with the same down payment could cost the buyer $4356 a month which may seem like a small difference. Over the life of the loan the full cost is $1,568,117.00 which equals almost $90,000 more.

So what can bankers, realtors, financial planners, CPA’s and attorneys do to help clients prepare for what could be the largest investment of their lifetime?

First asking the right questions and having the right team of experts available to assess the situation is crucial. Here are some of these questions:

  1. When will you be purchasing a property?
  2. Do you know what your credit scores are?
  3. Have you spoken to a mortgage professional or realtor to find out what is needed for preparation on this purchase?
  4. Have you figured out how much of a mortgage you can afford?
  5. Do you know what the taxes are in the location you are looking to buy in?
  6. When the divorce is final will you be purchasing a property?
  7. Maybe I can help you by having you speak to some professionals that I work with who can give you guidance and insight?

This is the age of information and we cannot all be experts in every area but we can have a team available to help us provide what is best for our clients instead of sending them off into the vast wilderness of misinformation and “so called” experts.

These are professionals to be considered as a support team for any CPA, financial planner, realtor, mortgage banker, or attorney:

Mortgage professional-

If you are not a mortgage professional find one with great knowledge and experience that you are very comfortable with. This professional should be available to you and your client offering feedback when purchasing is just a thought. They can help with the preparation and education allowing the buyer to make decisions that can lead to a more graceful and less expensive purchase moving forward.

Getting approval for a loan is more complicated these days although banks want to lend money they also are very careful to price loans right based on the potential risk (credit, income, and value of property). They will request a lot of information to make sure they have the proper documentation on all the requirements for underwriting the loan. A mortgage professional will guide your client and explain what is needed early on making the end result attainable and expectations clear.

Credit Expert-

Having the right credit expert assess what needs to be done to get the buyer into the best credit position for purchasing the property. With the right credit score buyers can save hundreds and thousands of dollars over the life of the loan or make loan approval a possibility. Credit takes time to fix and time to manage properly for the best improvement to scores.

If a buyer cannot be approved for a mortgage due to poor scores it is a waste of time to even begin searching for a property. Credit and the scoring systems are very confusing which could mean what one might think is a minor misstep can turn into a major cost for the buyer or a rejection for a loan.

Real Estate professional-

Having the right real estate professional who can help the buyer define the area, price point, type of property, time involved in finding it, and provide expert negotiation skills plays a huge part in the success of the transaction.

Here is an example of how this can work.

John and Linda are in the midst of a divorce. Larry is John’s divorce attorney. John is giving the house to Linda and at the moment he is renting. Once the divorce is final he will be looking to purchase an apartment in NYC. Larry knows John will have credit issues since some of the bills were not paid on time due to the divorce process.

He also knows that John has been so absorbed emotionally by the divorce that he has done little homework on what is needed for loan approval. As the divorce is winding down to its end Larry starts asking John some questions. He puts John in touch with a mortgage banker, realtor, and us for credit repair.

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The banker finds that John not only needs to get approval for a purchase but he also needs to be taken off the existing mortgage that his ex-wife is responsible for once the divorce is finalized. The banker gets involved right away to help the refinance along since John will not be approved for the size loan he wants if he is still on the mortgage associated with his ex wife’s property.

Since credit is a big factor in the loan approval and cost of financing, we get started right away in working on the credit scores. In John’s case we will need 30-60 days to improve his credit. Now that John knows what he needs to do he also contacts the realtor and discusses what type of property will work for him and when he should start looking based on the timing of the refinance of his existing mortgage and the credit restoration process.

John is grateful to his attorney for guiding him at a time that he could not guide himself and leading him to other professionals that can help him realistically reach his goals.

Reaching out and learning about other professionals’ that play a large part in your clients financial life will lead to great support, knowledge , and value for your customer base. Being proactive in helping is what separates an average professional from a great one! Of course giving more will ultimately lead to happier clients, more referrals, and a more successful business!

Call us with any questions or feedback on credit challenged clients or credit in general!

Making sure credit is analyzed with future financial goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

Great credit brings great opportunity!!” Copyright 2013 •

North Shore Advisory, Inc. offers credit repair, restoration, monitoring, and education services. We’ve been providing credit education and credit improvement for almost 25 years. For bankers and realtors we can review your clients credit reports and scores to see if we can improve them.

We can help you with your business credit needs as well as any personal credit scores.
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Cheap Real Estate Property Is Hard to Find

When it comes to real estate in the post-subprime era, it’s really hard to find a cheap property, or even to identify one. Cheap property, including one-to-four family residential homes were very prevalent during the early part of the 1980s. They were ideal for people on a budget; and to give real estate agents a chance to do more business.

Agents could make a better impression on their buying customers by showing them how to buy a home at a low price, do some rehab work on it using the 203k rehab mortgage loan, and resell it at a higher price. Making money with real estate was much easier then – no matter how you approached it. Finding cheap property today is a totally different story.

Between 1987 and 2007 the price of real estate property increased by over 300 percent according to a Property Price Index chart I found on the Steadfast Finance website. While this post is not intended to be scientific in nature, it is necessary to use facts and figures to back up the main idea that, due to the balooning of home prices over the 20 year period mentioned, and the subequent crash, it is tough to find a cheap property which doesn’t have a mortgage that dwarfs its value.

There is not much room left to build equity for the foreseeable future without a dramatic rebound of real estate market prices, and I don’t see that happening anytime soon. However, there may be some instances where you may find cheap property throughout the United States, but the market areas – some being better than others – in which they are located will most likely be depressed, thus removing the motivation that would otherwise exist for you to purchase it.

Let’s face it, most towns/neighborhoods that offer the cheapest properties would normally be economically depressed in most categories. Even those areas that are considered middle class by the traditional definition suffered a great loss of property wealth and has none to offer you as an investor looking to turn a quick profit, or home buyer who is looking to build equity.

There is some indication that property values show signs of increasing but that increase in value, providing it is real and consistent will go towards leveling off the property owners’ existing underwater situations. It does not help prospective buyers simply because the property owners are unable to sell until they are able to satisfy their lenders from sale proceeds. It is unreasonable to assume that a property owner is willing to dig into his/her own pocket simply to make a sale to anyone and walk away that much poorer.

You may be thinking; well if all this is true, how will investors be able to stay in business? The answer to this question is rental income! Some investors buy to resell while others buy to rent. Short term versus long term investments; And you can safely assume that when the buy/sell market is tough, most of them will put their money into rental properties.

Keep in mind that when the market is tough for investors, it is similarly tough for home buyers to get reasonably priced homes to buy and mortgage money to finance them, so many of them become new tenants for the long term investors.

If you are in search of cheap real estate property in today’s (July 2012) market, you might get lucky and find that proverbial need-in-a-haystack property that is either free-and-clear or has a very low mortgage balance, where the owner has passed away and the estate is forced to sell…

Or a free-and-clear/low-mortgage-balance property that is in disrepair and perhaps uninhabitable without major rehabilitation and you have the means with which to purchase, repair and resell. However, you might have to look long and hard, so be prepared for the long haul.

If you have been in the market to buy a home for your own personal use, or you are an investor looking to buy cheap, repair and resell; I would be interested in learning about your recent experiences. If you have had some good luck and found the ideal property for your purposes, or you’ve had the worse time trying to find a property you can work with; tell me about your experience in the comment box. Good luck!