Understanding How Your Credit Can Be Good News for Your Interest Rate

So you’re taking on a mortgage, or considering it – congratulations! Also, good job. Educating yourself in financial matters is super smart (though seriously daunting and intimidating sometimes). When it comes to interest rates, it can be easy to dismiss the steps you can take to try and get better rates. However, there are many things you can do before even applying for a mortgage to improve your ability to get a lower interest rate.

It begins with keeping the following in good standing: credit, debt, savings, income, and other assets.

Having a low interest rate is likely going to be important to you in the long run. While a high interest rate may be easy to overlook when purchasing a home, you may feel the financial impact of a higher rate down the road. A higher interest rate will result in you paying more over the lifetime of your mortgage2.

Good credit can result in lower interest rates when you go to purchase a mobile home2. Many people don’t realize how important it is to keep your credit score up or to work on getting into a good credit score range.

When applying for a mortgage or preapproval, it’s also a good idea to keep an eye on your credit report and to promptly correct errors1. You should avoid doing anything that may negatively impact your credit throughout the process of purchasing a mobile home; this includes applying for new, additional lines of credit1.

While your credit score isn’t the only key to a low interest rate, it is one of the key factors2. Your credit report is the main record lenders have of how you spend money. It tells them whether you pay on time, if you pay what is owed, and how consistent you are. It’s riskier for them to lend when your credit score is low in terms of your perceived ability to make payments. It’s similar to a school giving a better scholarship based on grades. While it’s not always fair to those who really have to work for a high grade versus those who are naturally good test takers – both got the same grade. The same is true with credit. If your credit has seen better days, you can improve it with hard work.

Another key factor is your debt1.  A lot of debt may deter a lender from lending to you, or may negatively impact the terms of the loan. Lenders calculate your debt to income ratio, so you definitely want to pay off as much debt as you can before applying for a home loan. Many people only see their home as an investment and not as debt, which it is. A mortgage is probably the biggest loan you will have in your life. Owning a home can be rewarding, but it is also a big responsibility. The best thing to do is either consolidate or pay off debts that you can, or at least have proof that you can consistently pay towards your debt while also making your mortgage payments.

Your savings and income may also impact your interest rate and the terms of our loan.  Starting to save is obviously amazing when considering a mortgage. It also can look good when your interest rate is being decided. Savings can demonstrate to a lender that you can pay your mortgage payments. This can also be shown if you have consistent income. Having a steady job or creating a savings budget could help you when trying for a better interest rate. Assets such as land, cash settlements, etc. could also positively impact that way that you appear to a lender.

Understanding your credit is the key to reaching for a better interest rate. Don’t just accept a high rate. You’ll pay for it later. Do what you can to make your credit shine!

Start Improving Your Credit Today!

  1. Consumer Financial Protection Bureau. 16 August 2018. How does my credit score affect my ability to get a mortgage loan? https://www.consumerfinance.gov/ask-cfpb/how-does-my-credit-score-affect-my-ability-to-get-a-mortgage-loan-en-319/

2. Consumer Financial Protection Bureau. 16 August 2018. Seven factors that determine your mortgage interest ratehttps://www.consumerfinance.gov/about-us/blog/7-factors-determine-your-mortgage-interest-rate/

Understanding What Makes Up Your Credit Score

Part of accurately building your credit is by understanding it. That begins with a breakdown of the factors that play into your score. The assumption by many is that credit is based solely on our ability to pay back money. While that is an aspect – it’s important to look at the collective.

Let’s elaborate on the 5 components of credit. Below we’ve got some examples to further help explain what each section means. These are made up examples and do not pertain to actual people or advice.

    1. Payment History: How well you’ve done with paying back your charges – based off consistency of repayment. Example: Debbie pays a little over her minimum payment before the due date. 
    2. Amounts Owed: How much you owe compaired your credit limit. Example: Debbie’s credit limit is $500 and she has a balance on her credit card of about $50 at a time. This is 10 percent of her limit, so her ratio of credit to amount owed is pretty low.
    3. History Length: How long you’ve had your credit. Example: Debbie has a credit card that she’s had for about 10 years. It shows over time how she’s used the card and done with making payments.
    4. New Credit: Based off opening new lines of credit. Example: Debbie opened a credit card, got a car loan, and opened a store credit card all in within two months. This could cause her score to drop.
    5. Credit Mix: Diversity and amount of credit lines. Example: Debbie has 5 lines of credit now: a department store credit card, a car loan, a secured credit card, a credit card through a bank, and a major credit card.

Check out This Credit Infographic

Source: https://www.equifax.com/personal/education/credit/score/how-is-credit-score-calculated

Debt Avalanche Versus Debt Snowball

Our society talks about the weight of debt, but there’s not a lot of talk about overcoming it. I’m here to add to the conversation. There are two great methods for paying off debt. Both options give you a bit of control, organization, and most importantly they help you see results. One is not   better than the other – what matters is how they may fit your specific situation and your perspective on financial wins.

So, when reading this think about your situation, and maybe it will prompt you to do some reevaluating. Both the avalanche and snowball method can help you start a journey toward financial wellness, without being overwhelmed.

*Keep in mind when looking at these methods that mortgages loans are not included. Not because they are not a debt, but because mortgage loans are long terms and can take decades to pay off and not everyone plans to stays in their home until the mortgage is paid in full.*

Debt Avalanche: repayment option that focuses extra financial resources to the highest interest rate debt payments first. Then it works down the line in descending order of debt interest rate. If you’re willing to be disciplined – this may be the perfect fit.

  • Pay the minimum required for all loans, use available funds to make extra payments to highest interest item first
  • Main asset: Helps you reduce some long-term high interest (lower overall
  • Main flaw: Doesn’t yield quick reward
  • Good for people with high interest loans

Learn More

Debt Snowball: repayment option based on paying minimums and paying extra on the smallest debt, then when the smallest debt is paid off, start paying off the next debt with the smallest balance.  If you need some motivation this can be a good option for you.

  • The idea is that while paying the minimum owed on all debts you also pay off the lowest balance debt quickly and then move on to paying more than the minimum on the  next smallest debt and so on.
  • Main asset: You can start knocking out small pieces of debt + see the results of your effort quicker
  • Main flaw: You end up paying more in interest (higher overall payments)
  • Good for people who need a bit of encouragement or a push to start

Learn More

My own method is to use both. When I began tackling my finances,  I only had student debt in the form of multiple loans. I used a mix of snowball and avalanche. I paid more than the minimums, and once I had the loans more manageable I started allocating additional amounts to higher interest loans within my collection of student loans. So, don’t feel limited you can use both as well!

Both options can be a good plan for anyone who needs to pay off debt but always consider your complete financial situation, including making sure you have an emergency fund for unexpected expenses and speaking with a tax or financial advisor about your individual financial situation. Taking the first steps can feel hard, but the reward is worth it. Which method better fits your situation? What first steps will you take?

Gearing Up for a Financial Spring Cleaning?

If you’re like me, you are gearing up for spring cleaning. Dust has piled up and the system you had going for organization may need a little extra attention. Have you thought of tidying up your personal finances? They deserve a good scrub, too! I get it – cleaning your home is a lot less intimidating and has immediate results. Yet, the rewards of creating a habit in which you check in financially can lend itself to long term progress.

Let’s look at ways you can spruce up your finances this spring.

  1. Pay towards your debt with your tax refund.
    It’s tempting to use your tax refund money on fun things or vacations. I’m not saying don’t do anything nice for yourself, but keep any debts you may have in mind. Could you pay something off with your tax refund? Want to cut back on some loan interest? It may be worth putting that money towards reducing or paying off a debt.
  2. Consider cutting back.
    With so many subscription services these days it’s easy to let them add up without realizing how much they are really costing you. Take inventory. Are there some you could get rid of? Could you share or split with a friend? Find a cheaper service or option? Making these changes makes you aware of expenses you may not have realized and helps you prioritize.
  3. Meal plan/ buy in bulk.
    There’s a lot of waste that happens in my house when I don’t plan meals ahead. Not just because I’m not buying in bulk, but because when I’m less precise I spend more. The old ‘take a list’ thing is real. Give your finances some love by getting the best deal you can when grocery shopping and stretching those meals/ingredients.
  4. Leave the credit card at home.
    I know, you’ve got that project, that thing you want, but making financial stability your priority is worth so much more than a moments satisfaction. Save up for those items so you can pay for them without adding to your debt.
  5. Have a spend free day/ weekend every now and then.
    Take a day to let the money sit still without being touched. You can still have a fun day! This helps us evaluate what we are spending money on and can be a wake-up call to bored or emotional spending. Get some spend free ideas here!
    shutterstock_586587746[1]
    Spend some time outside!
  6. Outline a debt repayment plan.
    Just hoping that bills will go away isn’t reality. Like everything else, it takes work. So, take this time to get serious and make a plan to start chipping away at your debt. If you have a plan already – great job – tighten it up and adjust it, if needed.
  7. Check on your emergency fund.
    Is it depleted, nonexistent? Work on making it priority again and give it a little TLC.

Have any other ideas? How do you spring clean your finances? I hope this has encouraged you to spend a little time digging in, and I hope that you see a return on your efforts.

Get Tips on Reducing Debt

First-Time Homebuyer Resources

So, you’re wanting a place to call your own? That’s exciting! Have you done your homework? It’s going to take some preparation and research to purchase a home. We want you to be well-informed and encourage you to be your own advocate while researching and making home purchase decisions.

We’ve gathered some resources and information about being a first-time homebuyer and have provided them below. While by no means all-inclusive, we’re  hoping these resources will help get you started!

Young_Single_Lifestyle_Saltbox-30
Homeownership is closer than you think. Get creative with your options!
  • You’re probably familiar with FHA Loans. These are loans insured by the government, more specifically the Federal Housing Administration. FHA Loans generally require lower down payments but do require the payment of mortgage insurance premiums which protect the lender if a borrower defaults.
  • If you’re an active or previous member of the military, a VA Loan may be something to consider. These loans are offered to credit qualifying veterans, or their surviving spouses if service and entitlement requirements are met. There is a VA loan no down payment option.
  • If you’re interested in living in a rural area as designed by the USDA Rural Guaranteed Housing Program, a USDA Home Loan may interest you. USDA loan programs are designed to improve and grow rural areas and you don’t have to have a farm.
  • If you’re interested in living in an energy efficient home, you might want to consider programs that finance energy saving home improvements as part of the mortgage. Some are offered to first-time homebuyers.
  • Lastly, check your local home loan options! Inquire with local lenders who know the area in which you would like to live for financing options. You might be able to find a local down payment assistance program, or other alternative program that fits your needs!

Consider a Mobile Home!

Still on the fence? Wondering what you’ll gain by being a homeowner? Check out these benefits of being a homeowner!

6 Questions to Ask Yourself When Saving for a Down Payment

Investing in a mortgage is a big step. It’s one of the biggest financial steps an individual will take in their lifetime. So it’s important to weigh it carefully. Don’t be discouraged by the size of the choice – instead be encouraged by the variety of resources you can tap into.

Down payments will vary among lenders and in amount, depending on the loan program, type of loan, home price, credit score and budget. Below we’ve crafted some questions that will help you evaluate and analyze your ability to save for a down payment.

shutterstock_404446555
Be ready for your down payment by asking yourself these important questions.
  1. Is now the time for me to purchase a home? In a society that favors the word “now” over the word “later,” this question may seem silly. But it’s not. Purchasing a home means saving consistently, making payments, paying additional bills, maintenance responsibilities, and more. Check out listings near you and see what’s out there. If you aren’t in a place where you can save or you haven’t been saving. It may be time to wait. Be honest with where you’re at.

     2. What down payment can I afford? The possibility of purchasing a home is exciting. However, often our eyes are bigger than our wallets. It’s important to be practical. Consider how much you can pay out of pocket for a home. That may mean going with a cheaper home or being stricter with your spending.

     3. What monthly payment does my income allow? Simple. How much do you or your household make in a month? What will your house payment do to that number? If it doesn’t cover the cost now – it won’t later. Consider picking up odd jobs or making a bigger down payment, or trying the next question.

    4. What changes in spending do I need to make? Everyone needs to evaluate their spending before purchasing a home. Sometimes we need to prioritize the way we spend money. Leisure spending may not always be an option. If purchasing a home is a goal, consider how you can cut spending or alter your habits.

Get Savings Tips Now!

    5. What method will I use to save money? Automatic saving accounts are the most widely recommended method of saving. Usually free, they can be drafted from your pay without effort from you. Banks sometimes have programs for first time buyers or you could invest. You could even try putting a dollar or change in a jar or bucket every day and depositing it every so often.

     6. Do I need to ask for lower rates? If you’ve tried everything above and you still need some wiggle room – evaluate you bills. Are you paying high interest rates on credit cards? Has your car insurance been the same for a while? Consider calling and asking for lower rates. This could put more money in your pocket.

Congratulations, you’re doing your research and preparing well! Are you ready to start saving or do you need to work on one of these questions?

⇒All it takes is 2 steps to SUBSCRIBE to our BLOG⇐

1. Scroll to the bottom of the page

2. Enter your email and receive our latest posts in your inbox!

All Things Credit: Fact vs. Fiction

Credit is complicated. There are no two ways about it. The best approach to dealing with credit is to educate yourself. This takes time and sometimes it means making mistakes, but don’t let the past dictate your future, push forward.

If you’ve had a hard time with telling the difference between fact and fiction when it comes to credit — this sheet is for you.

Fact:

– Credit reports list your payment history

 – Credit reports from the three nationwide credit bureaus can be obtained free once a year

Credit scores are separate from credit reports, however credit scores are typically generated by credit bureau reports

If YOU check your score, it does not lower your score. If a lender does, it can lower your score

shutterstock_162924104
When it comes to credit, do you know fact from fiction?

Fiction:

– The number of credit cards a person has boosts their credit

– The higher the income, the better the credit

– Paying bills late will always lower your score

– Bad credit is forever

From fiction to fact…

“The number of credit cards a person has boosts their credit”

Your credit score does not factor in how many credit cards you have, but it does factor in credit card balances, credit history, late payments and the amount of credit card balances in relation to total available credit. Having more credit cards provides an equal opportunity to pay on time and to miss payments. Again, it all goes back to responsible and timely spending. It’s the quality of your spending, not the quantity (it’s the amount being charged, not the number of credit cards).

“The higher the income, the better the credit”

How much income a person makes does not correlate to how they spend it.   Your credit report shows if you pay your bills on time and the frequency in which you do so.  While making more money may help you meet your payments, a credit score is dependent on how you practice financial responsibility.

“Paying bills late will always lower your score”

Don’t make paying bills late a habit. Most credit card lenders provide a grace period after the due date to make a payment. However, when paid after the grace period late payments are generally reported to the credit bureaus and can lower your score.

“Bad credit is forever”

Bad credit does last, but not forever. It usually ages off credit reports after 7 years, but that time can be extended if you have been through bankruptcy. That’s a good amount of time, but you can pay off debt.

Start Building Your Credit!

When Paying Ahead on Your Mortgage Can be Beneficial

When we started our mortgage, I was shaken up by the number of years and total of payments behind owning our home. It seemed so big, and I could only see it getting bigger with interest. In the first year of owning, we tried to simply get used having our monthly payment. But after researching I wanted to be a little more proactive in paying off our home.

Pre-paying your mortgage is situational. It’s not a one size fits all, but it can save you a lot of money in interest if you are in a financial position to do it. For me, it makes sense to pre-pay an extra fifty dollars a payment to cut time and interest off my total amount owed. Let’s dig in and look at when paying ahead can be beneficial.

If you’ve found your forever home. If you know you plan to stay in this home for a long period of time, then paying it off faster may be worth it. That way you are putting money into something that will benefit you and your family for years to come.

Family Summer Lifestyle 2018-56
If you’ve found the place to call home, you’ll feel more at ease in investing in it. 

You’re in a financial situation where you can focus on debt. When you boil it down, the difference between paying off your mortgage sooner or later is when you want/need to have more money. What I mean is that if you are in a tight spot financially now with lots of bills and financial responsibilities you probably would benefit more from paying your regular payment.

On the other hand, if you don’t have a lot of bills or financial responsibilities and you’ve got savings you may want to pay down your mortgage debt now. This may give you less money in the future, but you also will have less debt. It’s always a catch 22. Moral of the story: if it won’t hurt you to add even 10 dollars a month, it may be worth considering. If it’s going to hurt you financially it’s not worth it – this is voluntary, not mandatory.

You want to eliminate as much interest as possible. In light of my own financial philosophy, reducing the amount of interest I pay over the life of the loan is a major motivation. Interest is a quiet debt, and for that reason I like to address it head on. The extra amount you end up paying by letting interest compound is significant. So, whenever I see an avenue to reduce my mortgage debt and the amount of interest I owe on that debt – I’m willing to do it. Even if it means having less money to spend now. I’d rather have less or no debt now than more money, but everyone is different.

You have some savings. It’s important to have some cushion. If you’ve been able to save, then pre-paying may also be appealing to you. That way you’re not spending the only money you’d have for emergencies and you are focusing on prioritizing your funds. Many people recommend having 3 – 6 months of earnings in savings, but this isn’t realistic for everyone. You should know based off your budget how much you might need if an emergency happened, and you needed enough money to last several months without a paycheck.

This is not an exhaustive list, but it does cover some of the main motivations behind pre-paying your mortgage. Remember the amount does not have to be big. You’d be amazed what pre-paying 10 dollars a payment for a year could do to decrease the total interest you will pay on your mortgage loan over time. Would pre-paying be a good option for you?

Click here to find out more.

How to Build Your Credit

Credit. It’s a six letter word that packs a punch. It helps us buy a home, allows us to learn financial responsibility, and sometimes it gives us a little more freedom than we were ready for. If you’ve had a bad experience with credit before – take a deep breath and relax. Your days of fearing a number are over. You are in control of your credit – not the other way around.

So you’re thinking, “Where do I start?” Whether you have no credit or bad credit – understand that building it doesn’t happen overnight. Just like building anything else, it’s a brick by brick process. Let’s jump in!

shutterstock_278640140
Credit can be intimidating, but there are plenty of tools that can help you!

Get organized This is the key. Without it the cycle continues. Buy a calendar or make one just for your bills. This will help you become aware of your due dates so that you make a habit of paying on time. Set reminders on your phone and/or computer. Do all three – remind yourself however you need to. Keep a wall of post it notes with payment dates.

If you get paper statements—highlight what you owe each pay period. Keep a file folder with “To pay” and “Paid” labels. If you don’t have paper statements—keep up with upcoming payments on a whiteboard. This is the easiest way to tackle debt and stay on track. It’s important. Make a system and stick with it.

Set your max spending (and stay under it) Credit cards and loans are great—they allow us the opportunity to own something we probably couldn’t before. Yet, they sometimes can feel like free money. Where we get in trouble is when we forget we have to pay everything back—with interest. So how do you control that spending?

Discipline. Give yourself a ceiling. For example, a card or company may allow $500. Tell yourself, my max is $100 and stick to it. You will still build credit and you teach yourself how to be responsible. Credit is designed to prove you are financially responsible. Use it to learn money maintenance and focus on necessity spending instead of purchasing luxury items.

Pay your balances in full when you can and maintain only a few accounts.

Keep up When it comes to your credit and payments—you are your own advocate. Know where you stand.

Consider getting a secured credit card or becoming an authorized user (Secured /Authorized user) Not all credit cards are the same. So if you struggled with one variety—don’t feel discouraged. There are more options. One option is a secured card. With a secured card you pay a deposit to hold the card. Your credit limit is the amount of your deposit. Essentially, it’s a safeguard should you fail to fulfill your payments. It’s good discipline because then you understand how much money is behind your card, and you have a strong incentive to make payments because you pay into it.

Another option is to become an authorized user on someone’s credit card. Find someone who is first and foremost financially responsible. The best person to do this with is someone you can learn from. Think of them as a credit mentor who can help you spend well and keep you accountable.

Start Evaluating Your Debt

There are many other ways to build your credit. These are just to get you started. Don’t wait.

⇒All it takes is 2 steps to SUBSCRIBE to our BLOG⇐

1. Scroll to the bottom of the page

2. Enter your email and receive our latest posts in your inbox!