Can Pre-Qualifying for a Mortgage Online Affect Your Credit Score?

Can Pre-Qualifying for a Mortgage Online Affect Your Credit Score?

When you’re shopping for a mortgage, it makes sense to seek a pre-approval from multiple lenders so you’ll know you’re getting the best deal you can. But applying for a mortgage can have an effect on your credit score.

Here’s what you need to know:

Your Credit History and Credit Scores

The three credit bureaus—Equifax, TransUnion and Experian—keep a record of your credit history. That credit history is used to calculate two different credit scores: your FICO credit score and your VantageScore.

Developed by the Fair Isaac Corporation, your FICO credit score ranges from 300 to 850. Whether you pay your bills on time and how much debt you carry are factors that can have a big effect on your FICO credit score. Other factors, such as how many times you’ve applied for credit lines or loans, have a smaller impact on your credit score.

While the FICO credit score is more common, lenders may also use the VantageScore.

VantageScore 3.0, developed by Experian, also uses the 300 to 850 range as well as a letter grade for your credit score. Applying for a mortgage pre-approval will have a small effect on your VantageScore.

How Lenders Use Your Credit

When you apply for a mortgage pre-approval, the lender will pull copies of your credit reports and credit scores from one to all three credit bureaus. The lender will evaluate your history and scores to determine whether to approve you and what amounts and terms you qualify for.

Once you apply, any credit bureau the lender used to order your credit report or scores will add an inquiry to your credit history, even if you do not qualify for the loan.

If you do qualify and decide to accept the loan, the lender will likely pull your credit scores again before closing on your loan to make sure no major changes have occurred.

Exceptions to the Rule

When home buyers are looking for a mortgage, it is common to shop around betweenseveral lenders. The credit bureaus understand this and take it in to account.

Under the FICO credit score model, all inquiries made within 30 days are lumped into one to give you time to compare different pre-approval offers. That means only one inquiry will affect your credit score.

Under the VantageScore model, all inquiries within a 14-day period are grouped together and are counted as one credit inquiry on your score.

6 Easy Steps to Furnishing Your New Home

6 Easy Steps to Furnishing Your New Home

It’s difficult to call a house a home if it lacks creature comforts. Without the right furniture and accessories a house is just an empty shell. Nevertheless, deciding how to furnish a home can be intimidating when you’re staring at blank walls. Here are six tips to help furnish your new home.

1. Take Stock

Before you begin shopping for new furniture for your home, clean house. Go through the belongings at your current place, taking stock of which items you want to keep or get rid of.

2. Collect Your Thoughts

Once you have a handle on your belongings, determine your personal style. Don’t get bogged down trying to understand interior design principles. Instead, go through magazines and browse the Internet to get inspiration from the images of things you find functional and fashionable.

When you’re ready to window shop, measure your new digs so you know what will fit your home. The sofa sectional you swoon over on the expansive furniture store floor might not be a good fit if you are confined to a smaller floorplan.

Also take time to test the furniture and comparison shop. Do you need durable materials to withstand pets and toddlers, or do you prefer to host elegant dinner parties? You can get a sense of how well a piece will meet your needs by testing the comfort level before buying (sit down, lie down, recline), and taking home a color swatch to see if you still like a fabric once you’re home.

3. Choose a Color Palette

Color can set the tone for your home’s personality. If you already own art or a rug, or have a fantastic view, then you can choose a hue from that element and carry the color throughout a room. Not everything needs to match, but it’s more economical to pick neutral furnishings and use color on an accent wall or in accessories like pillows, lamps and throws because you can quickly change those colored items to suit your mood.

4. Go for Quality, Not Quantity

When shopping, seek out high-quality furniture that will last longer and be comfortable for years to come. Although fashion fads come and go, classic, simple-line designs never go out of style. Save the frills for smaller furniture pieces, new fabrics and accessories.

5. Add Accessories

Accessories add personality to rooms. Mirrors, mantels, plants, clocks, carpets and area rugs are often overlooked home furnishings that can make a unique fashion statement. You can draw attention to a couch by hanging artwork overhead or arranging seating around it. You can play up a bed with matching sheets, comforters and pillows. Alternatively, you can shine a spotlight on your furnishings with an array of modern-day lighting solutions.

6. Be Patient

Don’t be tempted to buy everything you want at once, even if your budget can afford it. It’s better to start small and focus on one room at a time to make sure you’re happy with each purchase. While the set-up in a home decor store may look fabulous, buying the entire set will make your home look like, well, the home decor store.

Remember, when you make the invesetment to purchase a house, you’re likely planning to live in the home for a while. So give yourself time to settle in. Plus furniture shopping should be fun, so you should enjoy and not rush through furnishing your new home!

This article has been updated from an earlier version by Deena Weinberg.

Need More Space? Consider Remodeling the Attic

Need More Space? Consider Remodeling the Attic

One of the most overlooked areas of a home is the attic. Often forgotten except to store old boxes and keepsakes, attics actually have a lot of potential when it comes to remodeling your home, creating more living space, and opening up the space you already have. Here’s some attic remodeling ideas, as well as some common challenges most attic remodels face.

Attic Remodeling: The Possibilities

When most people think of remodeling attic space, they often think of lofts or other simple renovations to the space. Don’t be afraid to think outside the box, however. If you’re still in the planning process, here’s a list of some popular remodeling projects involving attic spaces to get your gears turning:

§  Vaulted Ceilings: Most people think extra living spaces when they consider remodeling attic space, but what about opening up living areas you already have? Transforming a neglected attic into vaulted ceilings for your living room or great room can change the entire feel of your home in one easy renovation.

§  More Windows: Besides creating more space indoors, opening up the attic to high ceilings also makes room for the addition of large windows to let more natural light into your home.

§  Extra Bedrooms: Provided your attic ceiling is tall enough, your attic can also be an excellent place to add extra bedrooms. Guest bedrooms and bedrooms for children and teens are particularly well-suited to the smaller spaces that are common in attic remodels.

§  Playrooms: Playrooms for children are a perfect fit for attic remodeling. Attic playrooms provide a nice place for children to get away from adults and do their own thing, not to mention they are ideal for keeping toys and messes contained and out of sight.

§  Lofts and Office Space: OK, we went here anyway. But only because lofts are a great use of attic space. They work great in conjunction with larger remodeling projects such as introducing vaulted ceilings into your home and can also add a little more flexibility to remodeling attic space since they don’t have the same code requirements that bedrooms do when it comes to access.

Some Things to Look out for With Attic Remodeling

Attic remodeling is full of possibility, however, you should keep in mind that there are some challenges when it comes to remodeling attic space.

The first is ceiling height. Consider 5 feet to be the absolute minimum height for a usable space, and know that even that is pushing it. You’ll be hitting your head on a regular basis even if you do abide by this rule. Raising or modifying your roof is always an option, though the high costs of such a project can be prohibitive in the end.

The second challenge you may run into is whether the floor of your attic can support a usable living space. It’s not unlikely that you might have to reinforce or replace the floor to safely accommodate living areas.

Finally, keep in mind the approach. You’ll need a stairway to reach your new attic space, so it’s important that you plan space accordingly. Spiral staircases can save room, and if your attic remodel doesn’t include bedrooms, then ladders are also an option.

Consult With a Professional

Whether you plan to do your remodel yourself or hire a contractor, it’s important that you have the space evaluated ahead of time so you know what you’re getting into. Attic floors and roof joists often play a large structural role in holding your home together, and your home’s infrastructure, including wiring, plumbing, and ductwork is often housed in your attic as well.

Hiring an architect, contractor, or engineer to come in and do a preliminary evaluation of your attic space can help prepare you for the remodeling project to come, and let you know whether you attic is a good candidate for remodeling in the first place.

This article was originally written by Matt Goering and originally published on HomeAdvisor.com

3 Risks When Buying a Vacant Home

3 Risks When Buying a Vacant Home

An unoccupied home may be the best bargain on the block, as vacant homes often are listed for sale at a reduced price. Yet, potential buyers should beware: vacant homes can experience problems due to neglect, lack of maintenance, aging, natural and human damage, and other factors.

Whether a home became vacant because of death, divorce, relocation due to employment or another life event, here are three things to consider when you are thinking about buying one.

1. Lack of Utilities Limits Home Inspection

Potential homebuyers typically have a professional home inspector evaluate a house’s condition to assist with the purchase decision. Yet unoccupied homes often have had their utilities turned off. With no way to check the water, electricity, gas, heating and cooling systems, and appliances, even a professional home inspector will be unable to thoroughly evaluate the house. There could be wiring problems, water or gas leaks or other defects — any of which would be very costly to repair.

While it might be possible to have utilities turned on temporarily, that can be a hassle and requires paying a deposit and putting the utilities in the prospective buyer’s name. Even if utilities are turned on, a potential buyer may have to accept some things as-is, such as a swimming pool, because you’re unlikely to get the entire system running just for an inspection, according to Bankrate.com.

On the other hand, without utilities, forgoing major system inspections is a big risk.

2. More Maintenance May Be Necessary

Even after a home inspection, unoccupied homes still face additional risk. If the previous owners abandoned the home or lost it to foreclosure, they probably did not pay much attention to routine maintenance tasks. Costly repairs could crop up sooner than expected. Make every reasonable effort to ensure that there are no expensive problems in the house that must be corrected. Also, don’t forget to budget for future repairs.

3. Obtaining Insurance May Be Challenging

Most insurance agencies will not insure a vacated house without their agent inspecting it. This is significant because the insurance agent might require costly repairs before issuing a policy.

If the agency issues a policy, the premiums usually will be significantly higher for an unoccupied structure. With no one watching over a home, it is more likely to suffer vandalism or other crime, and fire or other damage. Furthermore, such damage is far more apt to go unchecked, resulting in greater loss. Vacant homes can suffer broken pipes or leaking roofs with resulting water damage, stolen copper wiring or soffit and fascia, mold, rodents, termites and other pests, and damaged appliances.

While the list price of vacant home may be attractive, potential buyers need to be cautious. The time to discover issues with a home is before the purchase. With any home purchase, you never really know what problems could be hiding behind the walls, and unoccupied homes may have even more skeletons lurking in the closets.

This article has been updated from a previous version by Moshe Pollock.

Bring On The Home Bidding War

Bring on the Home Bidding War! You Can Win!

If you are buying a home at the height of a citywide seller’s market or simply want a sought-after house in a neighborhood with limited turnover, you may find yourself in the midst of a real estate bidding war.

Competing against faceless prospective buyers may bring out the warrior in you but, before you decide to go all out in your battle, you need to step back and decide how much you really want that particular home.

Should You Compete in a Bidding War?

In the thick of competition you may forget your end goal is a home that you love and can afford to own. If your offers have been turned down by several sellers because of competing buyers, then you may feel pushed to make an aggressive offer for the next home you like.

You should stop yourself from competing just because you think the time is right to become a homeowner or to move up into a new place. Instead, think about whether you really want that particular house enough to fight for it.

To guard against making an emotion-fueled offer for a house, take a hard look at your finances. While it may feel good at first to beat out other buyers and to purchase a property, it won’t feel so great in a year or two when you’re struggling to make the payments on a house that’s beyond your means. Know your limits before you begin to bid.

Prep for Battle

Your first step before entering a bidding war should be to consult with a lender to understand the maximum amount you can borrow, and to evaluate how much cash you have to spend while keeping enough money in a reserve fund.

Next, make sure you hire an experienced REALTOR® who can share information about local market conditions and communicate with the seller’s agent. You should rely on your REALTOR® for advice about how to handle a bidding war, but be sure to do your own research: Visit a lot of homes in the area where you want to buy so that you understand the value of various properties before you make an offer.

Bidding War Strategies

Your REALTOR® should work with you to craft an attractive offer based on the list price for the home, a comparative market analysis of similar homes, and knowledge gained from the sellers’ agent about the sellers’ motivations and preferences.

In a bidding war it’s important to work with a REALTOR® who will move quickly to present your offer and any counteroffer, and who is easy to communicate with during the transaction.

While you may assume that money is the motivator that steers sellers to one buyer over another, there are other ways to make your offer attractive, such as:

§  Solid financing: You may be competing against cash buyers, so make sure that your loan preapproval is in place and that you have completed all required documentation other than identifying a specific property.

§  Eliminate contingencies—carefully: If you own a home now, you may want to offer to buy another home without making your contract contingent on the sale of your current home. You take the risk of carrying two mortgages for awhile, so make sure you can safely handle the payments. You can also decide to have an “information only” home inspection rather than making your offer contingent on the outcome of the inspection.

§  Make the settlement date convenient for the sellers: Rather than negotiating on a closing date that’s convenient to all sides, you can tell the sellers you’ll work with their schedule or rent back the property to them after the closing.

§  Offer to pay all closing costs: You can reduce the sellers’ out-of-pocket expenses by offering to pay their share of the settlement fees, but before you do this get an accurate estimate of what those costs will be and make sure you have the funds available to pay them.

§  Personalize the transaction: Sometimes the tipping point for sellers who receive multiple offers is something emotional rather than financial. A personal letter describing your love of their home may tilt the scale in your favor.

§  Try an escalation clause: Money talks, too, so you can add an escalation clause to your offer that increases your bid by a certain amount above other offers. Just make sure you sent a limit on how high your offer will go.

§  Control yourself: Remember that any offer is subject to an appraisal (unless you waive that contingency, but that’s not recommended unless you have plenty of cash), so be careful not to bid above the market value of any property.

How Do You Avoid Paying a Capital Gains Tax on Real Estate?

How Do You Avoid Paying a Capital Gains Tax on Real Estate?

QUESTION: I’ve owned my home for more than 25 years in a neighborhood that has been revitalized, so now it’s worth a lot more than it was when I bought it. I want to sell it and move someplace else, but I’m worried about the taxes. How do you avoid paying a capital gains tax on real estate?

ANSWER: Congratulations on owning a home for so long and reaping the benefit of improving home values. Since I don’t know the details of how much you paid for your home originally or how much you have spent over the years on home improvements, I can’t give you specific advice. You should consult a tax advisor about any tax-related questions.

I can, however, give you some general information about selling real estate and federal income taxes.

Capital gains taxes are charged when you sell something that’s increased in value such as an investment like a stock or property. If you held onto the asset for more than a year before you sold it, then you are taxed on a long-term capital gain at a tax rate of 0% to 20%.

Capital Gains Taxes and Your Home

An important exception to the capital gains tax kicks in when you are selling your home. You can exclude $250,000 of your profit from the sale of your home if you are single and $500,000 of the profit if you’re filing taxes jointly as a married couple. However, you do have to meet specific requirements to claim this exclusion:

§  The home must be your primary residence.

§  You must have owned the home for at least two years.

§  You must have lived in the home for at least two of the past five years.

It sounds like you meet those requirements, but for other readers there are some exceptions to these rules that may allow them to take a partial exclusion. For more information, consult a tax advisor or IRS Publication 523.

While that exclusion may be large enough so that you can avoid capital gains taxes entirely, if your home has increased more than that in value, then you may still be able to reduce your tax bill because of home improvements you made.

The money you spent on any home improvements, such as replacing the roof, building a deck, replacing the flooring or finishing a basement, can be added to the initial price of your home to give you the adjusted cost basis of your home.

For example, if you purchased your home for $200,000 in 1987 and sold it for $550,000, but over the past 27 years have spent $100,000 on home improvements, that $100,000 would be subtracted from the sales price of your home this year. Instead of owing capital gains taxes on the $350,000 profit from the sale, you would owe taxes on $250,000. In that case, it also sounds like you meet the requirements for a capital gains tax exclusion and owe nothing.

Of course, all of this depends on your initial purchase price, the amount of money you spent on home improvements, and the sales price of your home. If you owe taxes, the amount you will pay depends on your tax bracket.

§  If you’re in the 10% to 15% tax bracket, your capital gains tax rate is zero.

§  If you’re in the 25% to 35% tax bracket, your capital gains tax rate is 15%.

§  If you’re in the 39.6% tax bracket, your capital gains tax rate is 20%.

Hopefully, you can dig back into your financial files to find records for your home improvement projects, since your past spending on those projects can save you money when you are ready to sell your home.

Can I Take Over a Seller's Loan?

Can I Take Over a Seller’s Loan?

Traditionally, when you buy a home, you apply for a mortgage through a lender, find a home for sale, and use a combination of your down payment and the loan amount to purchase the home. It is a tried and true method, but what if you want to skip the buying and selling process and simply take over another homeowner’s loan?

With certain loans you may be able to do that, but there is a lot to consider before assuming a loan.

The Basics

“In days long past, some mortgages were fully assumable with no qualifying required by the new borrowers at all,” said Ron Bork, senior loan officer for EverBank. Today, things are different. “Conventional mortgages are typically not assumable,” he said.

Some government-backed loans, such as Federal Housing Authority loans, are assumable, but you will have to meet the lender’s requirements and you may have to “come up with the difference between the existing balance and the purchase price,” Bork said.

What to Consider

You should start by comparing the loan amount to the value of the home.

“The balance of the loan needs to match up with the amount available for the remainder of the purchase price,” Bork said. Otherwise, you will have to pay to cover the difference.

You should also consider the current interest rates. If the interest rate on the assumed loan is close to or lower than current interest rates, it may make sense to assume it. If the interest rate is much higher, you may end up paying more in the long run.

Finally, make sure you completely understand the terms of the loan. Is the interest rateadjustable? Are there any surprise fees or balloon payments? Don’t take on a loan unless you know the terms.

Meeting the Lender’s Qualifications

When you take over a loan, “Lenders will undoubtedly use the same underwriting guidelines that they normally do,” Bork said. Meaning, you will have to be able to qualify for the loan before you can take it over.

The lender will look at your credit history and scores. While different lenders have different requirements for credit, having good scores with no delinquent accounts will give you the highest chance of approval.

Lenders will also look at your income and debt-to-income ratio. If you are carrying too many other debts, or if your income isn’t high enough to safely cover the mortgage payments every month, you may not be approved to take over the loan.

Exceptions

If you co-own a property with someone else, you may not need to go through the process of assuming the loan. For example, if you and your spouse get a divorce, you can continue to live in the home and make payments as long as your name is on the loan and title before the divorce.

If you co-own a home with a spouse or family member and that person passes away, you may also be able to simply keep the loan and home the way they are. However, ask an attorney or lender to look over the documents and facts with you to make sure.

Don't Forget These Costs When Buying a Home

Don’t Forget These Costs When Buying a Home

You’ve crunched the mortgage calculators, estimated your tax payments, and taken a realistic look at how much house you can afford. You’ve stuck within your range when scouring the realtor.com® listings, being careful not to bust your budget.

But there are more expenses involved in home buying than just the property costs. And those additional payments, if you don’t factor them in, can be high enough to derail your conscientious planning.

Here’s what to keep in mind:

Buying Costs

You’ve got your mortgage pre-approved, but that’s not all you will need to fork over to get the keys to your new place. Services that need paying:

§  Your buyer’s agent fee

§  An appraisal to confirm a reasonable market price for the property

§  Inspections of structural, mechanical, pest or other potential issues

§  A real estate attorney to review all contracts (depending on the state)

Property taxes vary widely, up to 4.2% of a home’s value in some states, according to a CNN map published in 2013. Depending on when you buy, you may owe the previous owners for property taxes they have already paid. You may also need to pay fees to a local association, such as a condo homeowner’s association.

Moving Costs

Moving into a home can involve major expenses for packing, storing and transporting your possessions and yourself. If you are moving across the country, the costs could be significant. Even moving across town can cost more than you planned for truck rental, movers and equipment.

Utilities

Setting up your telephone, electricity, gas and water—did you budget for these expenses? They could cost more at your new place, especially if you’re moving to a larger home or from a rental.

New Stuff

You may need to purchase appliances or furniture for your new home. Some items, like your old particle board bookshelves, may not be worth the cost of moving. Again, if you are sizing up, you face the potentially fun, but possibly financially draining, challenge of filling the new place.

Maintenance and Renovations

Trees fall on roofs. Gutters need cleaning. Driveways need repair…. A standard rule of thumb is to budget at least 1% of your home’s purchase price each year for home maintenance costs.

Maintenance can include things such as painting, replacing roof shingles, fixing or upgrading plumbing and wiring. The amount you will need to pay for maintenance can depend on the age of the home, the previous owners’ upkeep and the climate.

Homeowner’s Insurance

You won’t be able to obtain a mortgage without homeowner’s insurance covering both the property and its contents. However, the standard insurance may not cover natural disasters such as floods, tornadoes and earthquakes. Depending on where you live, you may want to consider taking out additional insurance to cover such risks.

Private Mortgage Insurance and Title Insurance

If the down payment on your home was less than 20% of the purchase price, you will have to pay for Private Mortgage Insurance. PMI protects your lender in case you default. It’s standard, and fees vary. The rules are complicated, but usually once you have paid down the mortgage so you owe less than 78% of the purchase price, you can drop the PMI payments.

Title insurance offers protection for you (and your lender) if you later discover that someone else could lay claim to the title, and therefore ownership, of the house.

Even if you are lucky enough to avoid paying for PMI, you find a low-cost attorney you can trust, and you have a modern, energy-efficient house, these expenses can still add up to thousands of dollars. That prospect should not scare you away from homeownership, but it always helps to be prepared.

Ben Apple contributed to this article.

How to Make a Corner Lot the Right Choice

How to Make a Corner Lot the Right Choice

When purchasing your dream home, a corner lot may be worth consideration, depending on your perspective. Some prospective buyers find corner lots attractive, while others would rather avoid the concerns that can converge at a street corner.

Consider these six questions to determine whether a corner lot is the right choice for you:

1. Do you like having more space?

Corner lots sometimes have more land compared to traditional home plots. That could mean more yard space for play, recreation and outdoor entertaining.

However, whether a corner lot actually has more space is specific to each property. Experts caution that some corner lots create the illusion of having more space because they are not directly adjacent to another home. They may have larger front yards but smaller backyards. A property with attractive landscaping in the front can increase property value when it comes time for resale. But if the backyard is small, can it be used for cook-outs, entertaining and relaxing?

2. Do you need more parking?

A corner lot might provide more curbside parking. That extra space could be a big advantage when you entertain visitors and family, or if you want space for a recreational vehicle or boat. On the other hand, in some locations curbside parking may not be allowed because of the proximity to the intersection.

3. Will the additional maintenance be manageable?

Because a corner house is more visible from the street, it could demand more upkeep to maintain its curb appeal. Ask yourself if you will be up to the task of putting more effort into keeping the public-facing sides of your house and yard presentable.

4. How do you feel about traffic?

Depending on where the house is located, there may be more cars rolling by on the intersecting streets. Automobile noise and headlights shining by at night may reduce the feeling of privacy within your home.

Extra traffic also can create safety and privacy issues—your children running into the street or pedestrian passers-by cutting corners through your lawn.

These concerns are fixable. You can soundproof your home with double-paned windows, hang appropriate window coverings such as blinds or drapes, and plant shrubs or install a fence to increase privacy. Although if the corner lot is in a quiet neighborhood, these issues may be less of a concern.

5. Will the home be a target for criminal activity?

Corner homes are said to be attractive to burglars because there are a greater number of escape routes. But whether there is truth in that statement depends on the neighborhood. Some corner homes discourage criminal activity because of high visibility by other neighbors.

6. When do you plan to sell the home?

REALTORS® generally agree that corner homes are more challenging to sell, due to the perceived drawbacks. If you plan on staying in the home for a while, you might disregard resale value and remind yourself that some shoppers seek out the benefits of corner homes. After all, when it comes to buying a home, the beauty really is in the eye of the beholder.