Effects on Credit Scores
Many people know that things like bankruptcy and foreclosure can cause heavy damage to a credit score, but a recent FICO-led study found that seemingly small things can have detrimental effects on credit scores also.
Lenders use credit scores to measure how well a person handles debt, and decide interest rates on loans—or even whether to issue a loan. The scores range from 300 to 850, with 650 and below considered poor credit. A good credit score is important not just for financing home purchases, but employers increasingly check credit as well as landlords when seeking rentals. Also, poor credit scores can also mean higher costs on car loans and credit cards.
For this study conducted in March, 2011, FICO, the most prominent public company providing credit-scoring services, and VantageScore, a new credit-scoring model, looked at three circumstances experienced by three types of mortgage holders — a borrower with a great credit score (780), a borrower with good credit (720), and a poor credit borrower.
A mortgage, the biggest loan most people will ever get, often is the most important part of a person’s credit profile. Among other things, the study as reported on Realtor.org found that just one missed mortgage payment can hurt credit scores significantly. For instance, a 780 credit score borrower saw her credit score fall to 670-690; a 720 credit score borrower’s fell to 630-650; and a 680 credit score borrower falls to 600-620.
Conversely, loan modifications, when lenders approve new loan terms, have a “very, very minimal” impact to credit scores, possibly dropping the borrower’s score by 10 or 15 points, according to FICO officials. The effects on credit scores caused by short sales and foreclosures also were looked at.
In the case of short sale, deed in lieu of foreclosure, or settlement, assuming the balance has been wiped out: The 780 credit score borrower falls to 655-675; the 720 credit score falls to 605-625; and the 680 credit score drops to 610-630.
In the case of foreclosure, or short sale with a deficiency balance owed: The 780 credit score drops to 620-640; the 720 credit score falls to 570-590; and the 680 credit score decreases to 575-595.
These effects on credit scores can be repaired, but in the meantime, they can be costly, so it is wise to monitor your credit score.
Condos or Co-ops
When you are getting ready to buy condos or co-ops, particularly in a place like New York City where co-ops are so common, it is smart to consult a condo specialist Realtor® because these experts can alert you to the differences between the two, and all the pros and cons.
While Realtors® should be consulted to get the details, there are a few general points to keep in mind when thinking of buying a condo or co-op. First, while traditional condos are more common in Chicago, Miami and other cities outside New York, a majority of the multi-unit developments in the borough of Manhattan are co-ops, so there are a lot to choose from.
Also, when trying to decide if you have the down payment needed to finance your condo, or co-op, remember that purchasing a co-op often requires putting down at least 25 percent of the cost, and often as much as 50 percent or even the whole amount. Also, you must go through an interview with the co-op board of directors, who run the complex, which can accept or deny the application for ownership. This is because by definition, co-op buyers are buying a share of the whole building, rather than one unit in the case of a condo.
Many tax breaks are available to co-op owners that are not offered to condo owners. Once again, you should consult a professional to determine the details. And of course, make sure you have a healthy credit score, because that will be taken into consideration when taking out a loan in any case.
Whether you end up buying condos or co-ops, you will have to take into consideration the monthly maintenance fees, which they both have. The fees are used to cover the cost of general maintenance, groundskeeping, and general repairs in common areas of the property.
It would be advisable too, whether you are buying condos or co-ops, to ask for financial statements for the complex, to see whether there is enough money on hand for major projects such as roof replacement. Also, because all the expenses are jointly shared, all the property owners share liability also. Although it rarely happens, when an owner defaults, the other owners have to share the responsibility of covering those expenses.
Selling condos is usually easier than with co-ops, due to the co-op board having the right to interview and scrutinize prospective buyers.
Because co-ops have an untraditional ownership system, it may be harder to find financing. The board also may have rules for down payments, which you'll probably find less flexible than some mortgage lenders.
These are just a few of the things to look out for whether you are buying condos or co-ops, just to give you an idea of what to expect.
Why Your Credit is So Important
Credit is a financial tool that allows you to purchase things now without having to pay for them right away. Your ability to use credit and repay the creditors on time, determines how much access to credit you will have in the future. Building a solid credit history enables you to buy more when you need it. This can be very valuable when purchasing a home.
When you apply for a loan on a home, the lender will run your credit to determine how much of a risk you are. By that, I mean what is the risk that they will not get the money they lent you, back. If you have a history of not paying your bills on time, then you are a higher risk to the lender. The clients that are a higher risk to the lender typically have higher interest rates. This is a sure way to get the money back at least in interest. I like to look at this as sort of a punishment for not keeping up with your bills and damaging your credit.
Having good credit is essential and very important when purchasing a large investment such as a home. You can still purchase a home without perfect credit however you will end up paying more in the end.
If you have poor credit, then you may not be able to purchase just yet. There are many programs however that specialize in improving/repairing your credit. These specialists will help you repair your credit by explaining exactly what you need to do to raise your credit. They can even tell you how long it will take to get your credit where it needs to be to either purchase a home and/or qualify for a specific program.
OwnACondo.com offers a Rent-to -Own Program that is great for people who need extra time improving their credit. The idea of this program is to rent for a specified period of time and make extra payments each month that will go toward a down payment and at the same time build your credit.
Although having an excellent credit score is vital to receiving the best interest rates and in the end save money, there are still programs that are available for people who are in need of repairing their credit. Keep in mind that it is always easier to prevent bad credit then it is to fix it.
Calculating Your Credit Score
Your credit score has become increasingly important in many aspects of your financial--and even personal--activities. It's well known that a healthy credit score is required for loans, like for a Chicago condo or suburban Chicago condo, but did you know that credit standing is often looked at to determine your risk for insurance, and sometimes even a job?
With so much hinging on one's credit score, it's unfortunate that so few people really understand how it is calculated. People often view their credit score as part science, part art, maybe even part weird magic. But although it is admitedly somewhat complicated, it is relatively easy to understand the basics and, most importantly, what it takes to achieve a high(er) score and how to stay there. It's important to realize that not every action you take or don't take has the same impact as others.
"There's more to a credit score than paying your bills on time," says atorney and loan professional Larry Bettag. Check out his Five Factors Affecting Your Credit Score.
