You’ve heard about credit scores and know that they are considered important, but why should you care about your credit score? Your credit score is looked at for multiple reasons - sometimes by employers, landlords, your bank, but also anytime you apply for a loan, including a home loan. Understanding credit scores and how they’re calculated will help you check into and improve your own score so you can have better credit when you are ready to purchase or refinance your home.
The most common credit score used is called your “FICO™” score, standing for Fair Isaac Corporation. FICO™ scores were first used with lenders in 1989. This score can affect how much a lender will loan you and at what interest rate. The score is calculated using information contained in your credit reports with each of the three main reporting agencies.
While the exact formula is unknown, we do know that FICO™ scores are calculated by considering five different categories. The importance of each varies as well as the factors within every category:
Payment History - Weight: 35%
Have you paid past credit accounts on time? How many accounts have late or missed payments?
Amounts Owed - Weight: 30%
How much do you owe on your credit accounts and how many accounts do you have? How much of your total available credit are you currently using?
Length of Credit History - Weight: 15%
How long have your credit accounts been established? How long has it been since you last used some of those accounts?
Credit Mix in Use - Weight: 10%
What types of credit accounts do you have? How many different types of credit accounts are you using?
New Credit - Weight: 10%
How many new accounts or recent inquiries do you have? How long has it been since you opened a new account?
These are general guidelines of what is considered and can vary from person to person according to what information is contained in their credit profile.
Base FICO™ scores range from 300-850. Lenders have different definitions of what range of scores are considered “good” or what scores will receive better programs and rates. In general though, this range represents what the different scores mean:
800 +: Exceptional
740-799: Very Good
< 580 : Poor
Even if your credit score is not in the good or higher range, there are still plenty of loan programs that you may qualify for. Talk to APM about our minimum credit scores for certain loans and other specialty loan programs that may be a fit for your situation.
Once you understand how your credit score is calculated, there are things you can do to improve your score. Here are some easy ways to make a positive impact:
Keep your credit score healthy and ready for that upcoming home purchase by avoiding anything that negatively impacts your credit score.
APM has you covered with all you need to know about your credit score and getting ready to start your homeownership journey. Check out the following for further information about credit scores:
The holiday season is fast approaching, with big meals, family get-togethers, bright lights and holiday gifting. As a parent, it’s often difficult to get children past their own wish list, and focused on the “giving” part of the holidays.
Here are a few ideas that you, your children, or the entire family can do to help make the season brighter for others - and teach a lesson or two in the art of doing something good.
Encouraging the entire family to get involved makes for a merrier and brighter season for you, as well as the recipient of your kindness. It just feels good to do good things! Have small children talk about the good feeling they have in their tummies and hearts so they recognize how giving can fulfill them even more than getting!
Once you’ve decided to sell, you’ll likely need to do some reorganizing, cleaning and staging to set your home off in the very best light. Holiday decor can be beautiful, yet also highly personal, so it’s necessary to keep things neutral and allow for room for the buyer to envision their own holiday gatherings (without tripping over the 35 snowmen on your front stoop).Here are a few tips on staging during the holiday season:
Stage first. Talk to your REALTOR® about how best to stage your home. Removing clutter and personal effects is a start but take a long look at your furnishings and artwork to ensure your home shows at its very best. Take extra furniture to storage (don’t store in your garage - buyers will see it there and wonder why it’s not in the house) and keep clear sight lines and pathways for an open and airy feeling.Decorate with restraint. Having a Christmas tree or a menorah on display is fine, as long as it doesn’t take over the entire room. Small, tasteful decorations sprinkled throughout the house give the buyer a sense of what they could/would do during the holidays if they lived there.Keep it cozy. Subtle touches that create a holiday vibe work wonders. A bowl of cinnamon-scented pine cones in the center of your table. A wreath hung over the fireplace gives a sense of warmth and a wonderful evergreen smell to complete the festive feeling.Don’t lose your palette. Be sure your holiday decor compliments your current home’s look and feel. If your living room is painted a beautiful blue, perhaps skipping the red garland and go with a more winter wonderland feel with silver bells and snowflakes. If your living room is gray or taupe, going with some cranberry garland or earth-toned trimmings will work nicely.Don’t forget the outdoors. Keep away from large blow-up displays or lights that pulse to the beat of Jingle Bells. Stick with simple lights and a small display on your porch this year.At the end of the day, you want to show your home off in its best light. That means allowing space for the buyer to see the walls and floor without dodging huge holiday displays. Let this holiday season be your perfect season for buying or selling your next home.
You can get into a home faster. A Doctor Loan takes into account a new practice, or even an employment contract, during the qualification process. Instead of waiting for your new clinic to be up and running, and having 2 years of bank statements and tax returns, the underwriter takes your employment contract into account when calculating your income. Most Doctor Loan guidelines require that the new position be contractually in place within 60 days of closing, so be sure to have your contract reviewed as early as possible in the loan process.
You can avoid costly PMI. Doctor Loans typically do not require PMI for down payments under 20%, like conventional loans do. Since PMI is expensive - and not tax deductible - this helps keep payments lower, freeing up cash to pay off other debts (such as student loans).
It’s easier to qualify. Typically, when you qualify for a mortgage, all payments (deferred or not) are included in the debt-to-income ratio. With a Doctor Loan, deferred student loan payments do not get wrapped into the overall debt ratios. For medical professionals early in their careers, this can make all the difference in getting the home they need, while they’re still building their practice.
Getting in over your head. Because you can qualify without using your student loan debt against you, it can make the overall payments difficult to manage if your practice takes awhile to get off the ground. Additionally, those student loan payments will start up eventually, and will eat away at what disposable income you may have.
Buying a home before you’re ready. Just because it’s faster, doesn’t always mean it’s better. If you’re a dentist relocating for your “dream job,” buying a home to finish the picture seems like a good idea. It’s not so great if you ultimately decide your job isn’t so dreamy - or you don’t like the new city you’ve moved to. If you decide to relocate again, you’ll likely have to sell your home to buy a new one wherever you land.
At American Pacific Mortgage, we have a full suite of expanded access programs for many types of borrowers. Our Doctor Loan Program has loan amounts as high as $2,000,000 in some cases, allowing for a purchase previously out of range. Looking to refinance an existing home loan? We’ve got you covered - this program has guidelines for both purchase and refinance transactions.
Our priority is creating experiences that matter - for all of our home buyers and home owners. It’s our way of saying thank you.
*with proof of 12 months deferment or forbearance.
Buying a home is thrilling and exciting and terrifying all at once. Add in the fact that you haven’t sold your current home, and there are many more moving parts to your transaction. In a hot real estate market, sometimes you have to jump in and make an offer before you’re quite ready (or able) to sell your current home. If you have a hefty savings account and income sufficient to qualify for both of your mortgages, it might not be a problem, But for millions of homeowners, this scenario requires a different solution.
First and foremost, you can consider submitting an offer with a contingency. While this makes things easier on paper, it can affect the desirability of your offer - especially in aforementioned hot markets. Putting your current home up for sale first can mitigate some of this risk for the seller of your new home, but there will likely still be some sort of contingency in the event your home doesn’t sell or the sale falls through.
In order to put yourself in a position of strength at the negotiating table, you’ll want your house to be sold, and all contingencies from your buyers signed off prior to submitting your offer. Again, this is an ideal scenario, but not necessarily practical.
A Bridge Loan is a short-term financing solution that allows you to finance two homes at once, temporarily. Once you sell your current home, you pay off the temporary bridge loan and are left with the one mortgage on your new home.
American Pacific Mortgage offers two programs to secure your bridge financing:
Either way, you can get the equity out of your current home to facilitate your new home - without the seller looking askance at whether your offer is bonafide. Add an APM approval letter and you’ve put yourself as close to a cash buyer as possible without having to actually have cash on hand for the purchase. This puts you in a much better negotiation position with the seller and takes a load of the worry out of the gymnastics required when buying and selling at the same time.
Be sure to talk to Michele about what option might work best for you, and put yourself in the driver's seat for your next home purchase.
As a first-time home buyer, it can be overwhelming to hear all the stories from friends and family about home loans. Often times you’re left with a lot of assumptions and not all of the facts about the process, possibly keeping you from taking the steps toward getting the home you’ve been dreaming about.
We’re happy to clear up the facts and make sure you’ve got the information you need to make a homebuying decision. Let’s bust some down payment and private mortgage insurance (PMI) myths right now!
Myth #1: Borrowers need at least a 10% down payment.
The Facts: The majority of first-time home buyers believe they need at least a 10% down payment (source: NAR), but that’s simply not true with all of today’s different loan types and programs. Average down payments are generally in the range of 5-10% but there are loan programs that allow as low as 3% and even a few no-down loan options.
Myth #2: PMI is always required on home loans with less than 20% down.
The Facts: PMI is generally required by the lender when a borrower purchases a home using conventional financing with less than a 20% down payment. But there are loan programs available that don’t require PMI. VA Loans do not require PMI and neither does our new No MI Advantage Loan. There are other loan programs with possible reduced mortgage insurance, so be sure to check in with us to find out what might fit your particular situation.
Myth #3: PMI protects the borrower.
The Facts: Many borrowers make the mistake of thinking that PMI is insurance that either protects the home or protects them if they end up in a foreclosure situation. PMI is in place to protect the lender from default on the loan, which enables lenders to help more borrowers get loans. It does not provide protection for the borrower if they go into foreclosure. And PMI is not to be confused with Homeowner’s Insurance, which is required and protects the physical home and property.
Myth #4: PMI cannot be canceled.
The Facts: PMI is in place to protect the lender when there is less than 20% equity built up. Once more than 20% equity is in place, PMI can be removed. PMI will automatically be terminated when the principal balance reaches 78% of the original value. You can also request cancelation sooner in writing if your home value has increased enough (contact your lender for exact requirements and instructions).
Now that you know more of the facts about down payments and PMI, are you feeling motivated to begin your homeownership journey? APM is here to help educate you and clear up any misinformation on the home loan process. We are standing by to answer your questions and help you every step of the way!
If you have been contemplating buying a house, we are here to help you think through the possibilities.
There are several factors to consider before you decide it’s time to buy a house. Here are a few:
Once you have carefully considered all of the above and decided it’s time to buy a house, get ready for your next steps!
Now that you have decided it’s time to buy a house - what next?
As you decide when to buy a house, check out our free resources to help you through your journey!
5 Step Roadmap of the Home Loan Process
We’ll take you step-by-step from start to finish of the homeownership journey so you’ll know what to expect and can better prepare.
Am I Financially Ready to Buy My First Home?
Get your financial questions answered as you work toward your homeownership goal. You may be ready sooner than you think!
Deciding when to buy a house is a big decision. There is a lot to think through but we hope you’re closer to making that decision now that you have the information you need. Are you ready to take that next step? We are standing by to help!
One of the obstacles that keeps first time home buyers out of the housing market is the misconception that they need to have a 20% down payment.* As housing prices have risen, saving up a 20% down payment* can seem like a far-off goal. Are you trying to save up to buy a home? Did you know that there are plenty of low down payment options for you?
The down payment is the portion of the home price that you pay cash for rather than financing it - most lenders require that some percentage of the purchase price be paid at the time of closing. Though a 20% down payment* will allow you to avoid paying private mortgage insurance, the average down payment size for borrowers is typically in the range of 5-10%.
You can definitely purchase a home with less than a 20% down payment!* Being able to make a low down payment can benefit you in a few ways:
There are several loan programs that allow low down payments and APM is proud to offer these loans to help first time home buyers like you. Here are some of our programs that allow low down payments:
*There may be qualifying factors. Please visit our Disclosures page for more details on loan types.
There are more specialty programs with APM that can help you afford a home by allowing a lower down payment - check out a few programs below!
And don’t forget - many first time home buyers can also get assistance with down payments:
Now that you know you have several low down payment loan options with APM, you can focus on saving up the amount you will need. Saving up a down payment doesn’t have to feel like such a chore. Try a few of our saving tips:
Achieving your homeownership dream may be just around the corner! Research your low down payment options, start saving your dollars, and contact one of our friendly loan advisors today so they can help you discover the programs that will work for your situation and help you plan ahead for your purchase.
The Bay Area real estate market continues to grow at exponential rates. Over the last six years, the median home price has surged by 143%. The area is currently experiencing a feverish high-demand, very-low-supply dynamic. The near-continuous hike in home prices means that many Bay Area homeowners have enjoyed surge in equity, thereby giving them the means to upgrade to larger homes.
However, many of the would-be homebuyers have their wealth tied up in their first home. They can’t afford to upgrade to a new house without selling the old one first. They could put in contingency offers on the homes they hope to buy, but with a long line of other buyers ready to put down all-cash offers, it may be difficult to compete.
In an ideal world, they could sell their property at the same time as buying their new property, but two escrows would mean double the risk. If they sell their home first, they would need to rent until they find a new home and their offer gets accepted. However, with the high-demand of the Bay Area real estate market, it could take months or more, which means potentially wasting thousands of dollars on a rental property.
A potential solution to this type of dilemma is a getting a Bridge Loan. A Bridge Loan is not a replacement for a mortgage; it’s a loan secured by your current home as collateral. This type of loan is typically used by home buyers to purchase a new home prior to selling their current home. It’s a short-term loan that gets repaid within a six-month to three-year timeframe, depending on the terms that are negotiated.
Essentially, a Bridge Loan allows a Bay Area home buyer to purchase their second home, even if their first one hasn’t sold yet. Since the Bay Area real estate market is in no short supply of buyers, selling a home usually isn’t a problem, it’s just a matter of time – Bridge Loans allow for time.
If you want to further explore whether a Bridge Loan is right for your situation, contact us today. The Reen Team will give you the individual attention you deserve. We will help you understand the process to qualify, apply and be approved.
Call today at (408) 626-1879! You can also apply here.
The Front-End Ratio considers and adds up your anticipated monthly mortgage payment, plus other monthly costs, such as homeowner association (HOA) fees, property taxes, mortgage insurance and homeowner’s insurance, and divides it by your gross monthly income.
The Back-End Ratio looks at your other payments and revolving debts such as minimum monthly credit card payments, student loan payments, alimony, child support and car payments – all of which are analyzed and added together. Then, those payments are added to your estimated monthly mortgage payment and housing expenses, and divided by your monthly gross income for your total debt-to-income ratio.
Here are some examples:
With a 29/41 (FHA) qualifying ratio
If you would like to run your own numbers, we offer a Mortgage Loan Qualification Calculator. Remember, these ratios are only guidelines. Contact us and let us help you figure out what kind of payments would best fit your budget. We help home buyers every day achieve the dream of home ownership!