Mortgage Financing With A Personal Touch

Credit and Buying Your HomeMartha Harvey - Senior Loan Officer, NMLS# 33096

About Martha HarveySENIOR LOAN OFFICER, NMLS#33096

• Started in the mortgage industry in 1989

• Helped thousands of borrowers

• Over $1 Billion in loan volume

• Licensed in Massachusetts and New Hampshire

• My favorite customers are first time homebuyers and the ability to walk

them through the entire home buying process

• Tougher Loans and finding a home loan for everyone is my niche

• I started in the industry as a processor, underwriter. I know the process

from the beginning to the end which gives me a unique take on getting

the job done.

You’re Ready to Make the Big Step

Before you start collecting paint chips and fabric swatches, you need to collect your thoughts around more practical matters –in particular, money matters.

The first question to ask yourself is “How much can I afford to spend on a home?” Purchasing a home at a price you can afford is key to successful homeownership – that is, maintaining homeownership. The best way to find out how much you can afford is to:

Review your credit

Develop a budget you can live with

Review Your Credit

The next step in readying yourself to buy your home is to examine and evaluate your credit standing.

In this section of the site, you'll find answers to many questions you may have about credit:

What is credit?

Where does credit come from?

How do you get credit?

How to establish a good credit history

How do you protect your good credit standing?

What’s on a credit report?

What does your credit report say about you?

How to fix errors on your credit report

How to repair bad credit

Credit permits you to obtain something now for little or no money out of your pocket, and pay for it over a specific period of time. Today, almost everyone uses credit in one form or another.

Open-end credit is extended on an ongoing basis, but usually with a limit on how much you may borrow. It is often referred to as revolving credit in that as you repay the balance due, credit up to a specified limit is then available to you again to use at anytime in the future. Credit cards, such as VISA and MasterCard, are the most common form of open-end credit.

Closed-end credit is extended on a one-time, limited basis, such as a car loan or a personal loan. Although you may still have a positive relationship with the lender after paying off the obligation, you still must requalify each and every time you want another loan.

What is Credit?

Credit is most frequently extended by department stores, finance companies, oil companies, credit unions, commercial banks and credit card companies. Those who extend credit are called creditors.

Where Does Credit Come From?

For credit to be extended to you, a creditor looks at two things:

1. You as a credit risk. Each creditor has different ways of evaluating applications for credit. By reviewing various factors such as income, length of employment, how long you’ve lived at one residence, previous credit history, amount of outstanding debts, stability of your checking and savings accounts, number of dependents, and so on, creditors can determine, to a certain degree, whether you will repay the amount borrowed over a certain period of time.

2. The collateral you are purchasing. If you fail to make payments on collateral purchased with credit, it’s easier for a creditor to repossess items like furniture and appliances than to foreclose on a home. The interest rate for installment debt is much higher than the interest rate for mortgage loan debt and affords the creditor the opportunity to assume a higher level of overall risk in the event of nonpayment. Therefore, credit may be extended to even those with a questionable ability to pay when it comes to purchases like refrigerators and stereo systems.Where a home has been posted as collateral for a loan, the foreclosure process can be costly and time-consuming. The lender assumes a greater amount of risk at a lower interest rate. Therefore, the lender is going to evaluate you and your credit history more carefully when you’re trying to buy a house. Unfortunately, this is where most people learn their first real credit lesson — when credit is really important — because they are stunned and surprised when denied, based on their credit card use.

How Do You Get Credit?

Establishing a good credit history is actually pretty simple:

• Open a checking and savings account. Maintain your checking account by keeping enough money in it to cover all outstanding checks. Make regular deposits in your savings account to establish a history of savings.

• Apply for credit gradually — once your checking and savings accounts are in good working order and if you believe your budget can handle the financial load — through retail store credit cards, a major bank credit card or a gasoline credit card.

• Don’t apply for more credit that you can manage. A credit card establishes you with credit as soon as your application has been approved.

• Make regular payments for the products or services you purchase with credit. Every time you make a payment as agreed to a creditor, you are building a favorable credit history. If you consistently repay your debts, your positive credit history will build.

How To Establish Good Credit History

Failure to repay the credit extended as agreed is where most people get in trouble.

• Late payments affect your credit history. It doesn’t matter that the credit card balance is only $5, or that the payment is only one day late, or that you pay the late fee. Failure to pay on time will put a black mark on your credit history, a black mark that will last for a year or more.

• Minimum payments are another trouble spot. While making the minimum payment — generally about 2% to 3% of the outstanding balance — is acceptable, it does very little to reduce your outstanding debt.

Say, for example, you buy a $2,500 computer using a credit card, and make the minimum payment of $50 per month. Assuming you don’t make any additional purchases with that credit card, how long do you think it will take you to pay for that computer? Would you believe EIGHT YEARS?! It’s true. By the time you’ve paid for the computer, you’ll probably be using it as a doorstop.

How To Protect Your Good Credit Standing

• Don’t assume you have a great credit history just because of the continuous offers for revolving credit you receive in the mail. Make sure that you have credit when you need it for a mortgage or a personal loan. You don’t want to be denied due to poor history or overextension of credit cards. What is more valuable — a house or a sweater? It’s up to you.

• Use credit effectively. Determine how much credit you can comfortably afford — 15% to 20% of your take-home pay is a good rule of thumb. Develop a household budget — a detailed list of your income and expenses. If you find that you cannot afford credit purchases, considering your current income and expenses, you should still concentrate on establishing good credit, but continue making most of your purchases using cash. Credit purchases should generally be limited to those that can be paid off at the end of the month. Larger purchases should be evaluated based on need, a usable life (remember the computer) and a payment schedule established to assure that the debt is paid off quickly.

How To Protect Your Good Credit Standing

• Identifying information: your name, nicknames, current and previous addresses, Social Security number, year of birth, current and previous employers, and if applicable, your spouse’s name.

• Credit information: the credit accounts you have with banks, retailers, credit card issuers and other lenders. For each account, your credit report will list the type of loan (revolving credit, student loan, mortgage, etc.), the date you opened the account, your credit limit or loan amount, the account balance, and your payment pattern during the past two years. The report also states whether anyone else besides you (your spouse or cosigner, for example) is responsible for paying the account.

The credit report just provides information. It’s up to the creditor to use this information to determine whether you are a good or bad credit risk. Each creditor will analyze the information differently when deciding whether to extend credit to you. The credit report typically includes four types of information:

What’s On A Credit Report?

• Public record information: state and county court records related to bankruptcies, tax liens or monetary judgments. In some states, credit reports list overdue child support payments.

• Inquiries: the names of all credit grantors and potential employers who obtained a copy of your credit report for any reason. The inquiries section of your report contains a list of anyone who accessed your report for up to two years. (Federal law requires the two-year retention for employer inquiries, but only six months for credit grantor inquiries.) These time periods protect you as a consumer or job applicant.

Almost as important as what is in your credit report is what isn’t: no information about your race, religious preference, medical history, personal lifestyle, personal background, political preference or criminal record.

What’s On A Credit Report?

To obtain a copy of your credit report, contact any of these credit-reporting agencies:

Experian

Trans Union LLC

Equifax

What Does Your Credit Report Say About You?

How To Fix Errors On Your Credit Report

To correct any errors on your credit report, you must write to the credit provider and explain the error.

If the creditor concurs that an error has occurred, the credit provider must report and correct the error to the credit-reporting agency.

How To Repair Bad Credit

It may take some time, but bad credit can be fixed.

You can contact a professional financial counselor or a credit-and budget-counseling agency, if you need help developing a budget/debt reduction plan.

Consumer Credit Counseling Service1-800-388-CCC3 (2227)National Foundation for Credit Counseling801 Roeder Road, Suite 900Silver Spring, MD 20910www.nfcc.org

Neighborhood Housing Services

Please check your telephone directory for a local Neighborhood Housing Services office or a Neighborhood Reinvestment Corporation district office.

A budget is a written plan that lays out your income and expenses as precisely as possible. Budgets and spending plans are critical to using credit wisely and to meeting financial goals, such as saving up for your down payment or making a monthly mortgage payment. With these tools, you'll uncover your spending patterns, and discover places where you can save.

The word “budget” seems harmless enough, but there are few other words in the English language that provoke more negative emotion and anxiety! Pick up a newspaper, turn on the television, or listen to the radio, and you’re bombarded with news about budget cuts, budget deficits, and budget-related layoffs. It’s no wonder the mere mention of the word can cause someone to cringe!

In this section, you’ll learn how to create a successful budget by:

• Adjusting your attitude• Identifying your expenses• Getting it down in writing• Following some helpful tips• Making simple, logical changes to your lifestyle

Develop a Budget

• Move to a less expensive neighborhood or apartment. • Reduce home heating by keeping the thermostat at 62 degrees and wearing lots of sweaters. • Cut air conditioning expenses by cooling to only 80 degrees (removing the above-referenced

sweaters!). • Walk or ride a bike to work. • Avoid clothing purchases (except for sweaters). • Eliminate entertainment expenses.

If there is one reason why most attempts to budget fail, it is the “you must cut expenses ’til it hurts” mentality. When establishing a budget, it’s easy to look only superficially at expenses and start slashing.

Imagine a lumberjack marching into the woods and chopping down the biggest tree. Sure, that big tree was easy to spot, but was it the best choice? It’s possible that smaller, less obvious trees may be better wood — and certainly easier to drag out of the woods.

For most households, the biggest or most obvious expenses are: mortgage or rent payments, utilities, food, transportation, clothing and entertainment. If you follow that “cut ‘til it hurts” mentality, you could:

Adjust Your Attitude

Identify Your Expenses

One of the most challenging aspects of budgeting is not cutting expenses, but rather identifying them. The best place to begin is to keep a detailed record of all income and expenses. This record should include all of your expenses right down to the change used for the parking meter. Although this identification process is the most challenging part of budgeting, it can be an enlightening and positive experience because you really see where your money is going! Once you see where your money is spent on a daily basis, a snapshot of your monthly expenditures comes into focus, and at this point, the hard work is done.

To be successful as a homeowner, it’s important for you to set aside funds in your monthly budget for home maintenance. It costs money to own a home, and you will continually incur a variety of expenses. Budgeting for these expenses monthly will help you identify, plan for and effectively manage the costs associated with owning your home.

It will also help you establish a plan to address day-to-day maintenance, as well as create a plan for financing major improvements and allocating funds to meet emergency maintenance needs.

Get It Down In Writing

It’s one thing to say that you’re going to put yourself on a budget. However, walking your talk takes effort. It’s easy to become overwhelmed by those good intentions. The best way to keep your promise to yourself is to get your budget down in writing. That way you’ve organized it, quantified it and given it a manageable size —there’s nothing scary about a little sheet of paper, now, is there?

It will take some thought and time to develop your budget. You may have to do some research, make some calls, and ask some questions to get the job done. If you do your homework right, you’ll have something many homebuyers lack: a clear picture of the price of being a successful homeowner.

Tips For Successful Budgeting

• Talk with other members of your family. Consider each person’s needs and wants so that all family members feel they are a part of the plan. If everybody realizes the rewards, they may work harder to make the budget succeed and be less inclined to overspend. When families don’t talk about money matters, it is unlikely that they will budget successfully.

• Be specific. If goals are vague, objectives may never be met and you and other household members may have different ideas of what the end result should be.

• Be prepared to compromise. If, for example, one person wants to pay cash for things and the other person prefers to buy on credit, they will need to discuss the pros and cons of both methods and decide on a middle ground each can accept. A plan cannot succeed unless there is a financial partnership.

• Set realistic goals and objectives. Setting the bar too high may lead to frustrations that could cause you to abandon your plan.

• Exercise will power. Try not to overspend — opportunities to do so will occur daily. Each family member needs to encourage the others to stick to the plan.

• Be flexible. Your plan will require adjustments to keep up with your changing lifestyle and financial situation. Don’t make a budget that is so rigid that each new development requires an entirely new plan.

• Develop a good record-keeping system. You’ll need to keep a record of what you spend. This will show how well you are following the plan and will allow you to adjust your spending to meet your goals.

Make Simple, Logical Changes

Once you have a picture of where your money is going, it’s usually clear to see where changes can be made. You’ll find that you don’t have to make big changes that sap the enjoyment out of life. Simple, logical changes in your spending habits can have a meaningful impact on your lifestyle. Small sacrifices can add up to significant savings.

Perhaps you’ll decide to discontinue the cable TV service, or at least get rid of ESPN 7 (which you never watched anyway). Maybe you’ll bring your lunch to work more often and dine out one less time per month. You may cancel subscriptions to the magazines that are piling up, unread, on the coffee table.

These are small changes, but they could add up to meaningful savings over the course of a month or a year. This first budget may be the most challenging; but after your first year as a homeowner, you’ll have receipts and records that will help make the job easier —and even more valuable — as time goes on.

A good budget… need not be complicated should not be rigid is flexible requires little time, and most important works for you, not against you

Credit Tips

Prequalify for a mortgage

• The first step toward purchasing a home is determining how much you can afford to spend on a home.

• Determining home affordability requires prequalification. • The prequalification process includes a review of your monthly debts, current interest

rates, and a review of your monthly income. • Social Security, child support, and unemployment compensation are all sources of

income that may be considered in the Gross Monthly Income Calculation. • Measurements called Housing Expense and Debt Ratios are based on estimated total

monthly debt, income and housing expense and are used by lenders to figure out whether you can afford a mortgage.

• The “total debt ratio” compares your total monthly debt with your total monthly income.

• PITI, the acronym for the four components of the monthly mortgage payment, stands for Principal, Interest, Taxes and Insurance.

• By comparing how much you can afford per month with different loan terms and interest rates, you can determine a range of “safe” monthly payments.

You should know and understand the following points covered within the Getting Ready To Buy A Home section:

Review Your Credit Tips

• There are two types of credit: Open-end credit is ongoing with a limit on how much you may borrow (e.g., credit cards), so as you repay the balance due, credit is available to you again up to a certain limit. Closed-end credit is a one-time, limited basis loan (e.g., a car loan).

• Factors that help creditors determine whether you will repay a borrowed amount over a certain period of time include income, length of employment and amount of outstanding debts.

• Once you develop a poor credit history, it is possible to regain good credit and qualify for a mortgage loan.

• Just because you may have a lot of credit cards doesn’t necessarily mean that you will have a good credit history.

• Creditors review your credit report to help determine whether to grant you credit or not. The credit report may include any bankruptcies.

• It’s possible to repair poor credit history by making payments on time for at least a year, reducing outstanding debt faster by paying more than the minimum payment and not applying for more credit cards than you can financially manage

Develop a Budget Tips

• Good budgeting shouldn’t hinder your enjoyment of life or force you to make financial sacrifices.

• Budgeting, a necessary part of analyzing income and expenses, includes discussing the needs and wants of your family members and maintaining a Monthly Spending Planner.

• Creating a Monthly Spending Planner details your monthly income and expenses and the comparison between your income and expenses.

• Creating a budget is beneficial for successfully purchasing and maintaining homeownership, saving for your children’s college tuition, and improving your retirement.

• Disability payments, unemployment and child support are sources of income that would be listed on the Monthly Net Income section of your Monthly Spending Planner.

• Credit card payments should be included on the Expense section of your Monthly Spending Planner.

• If your Monthly Net Income is less than your anticipated After Home Purchase monthly expense total, you should attempt to reduce your monthly expenses.

• As a homeowner, it’s a good practice to have three to six months’ living expenses in savings.

• Developing a good record-keeping system, exercising will power to prevent overspending and setting realistic goals are all essential for successful budgeting.

• A successful budgeting plan will help you financially protect your family from unforeseen events such as unemployment, death, etc.; understand how/where your money is being spent; and increase your savings.

Your Dedicated Mortgage Professional . . .

© 2015 Mortgage Network, Inc. NMLS ID# 2668 All rights reserved. Trade/servicemarks are the property of Mortgage Network, Inc. 300 Rosewood Drive, Danvers, MA 01923. Also doing business as MNET Mortgage

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a commitment to lend. Rates, terms, fees, and equity requirements are subject to change without notice. Restrictions apply. Equal Housing Lender.

Martha HarveySenior Loan OfficerNMLS #33096Office: 978-399-1303mharvey@mortgagenetwork.comwww.MarthaHarveyMortgage.com

Mortgage Network, Inc.239 Littleton RoadWestford, MA 01886