Looking to buy a home? Then you certainly need a good credit score.
Lenders today rely on your credit score to determine both if you qualify for a mortgage loan and what interest rate you’ll get if you’re approved. Most lenders consider a FICO credit score of 740 or higher to be an excellent score.
You should know the basics of boosting your credit score: Pay all your bills on time. Pay down as much credit-card debt as possible.
But there is one big misconception that could actually hurt your credit score. Many homebuyers believe that closing unused credit-card accounts will help your credit score. The truth, though, is that doing this might actually hurt your score. It’s all because of something called your credit-utilization ratio.
As credit bureau Experian explains, this ratio compares the amount of credit you are using with the amount of credit that’s available to you.
For example, say you have four credit cards with a total credit limit of $15,000. If you owe a total of $6,000 in credit-card debt, your credit-utilization ratio stands at 40% (Your debt of $6,000 divided by the credit available to you of $15,000).
Now, say one of those four credit-card accounts has no balance. You decide to close that unused account. Suddenly, though, your credit-utilization ratio will jump. Here’s how it works: You still have $6,000 in credit-card debt. But say the card you closed had a credit limit of $3,000. Once you eliminate that card, your total available credit drops from $15,000 to $12,000. Your credit-utilization ratio jumps to 50% ($6,000 worth of debt divided into $12,000 of credit).
Your credit score could fall if your credit-utilization ratio gets too high. FICO says that 30% of your FICO credit score is made up of the amount of debt you owe and how this debt compares to the amount of credit available to you.
This isn’t to say that closing an unused credit-card account is something you should never do. If you’re worried that the unused account will encourage you to rack up even more credit-card debt, then make sure to close the account.
But don’t ever close a credit-card account simply because you think it’ll help boost your credit score. You might actually cause the opposite to happen.
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Boomerang buyers are an increasingly important part of the Chicago housing market, according to a recent feature story by the Illinois Association of REALTORS.
And if you’ve lost your home to foreclosure or had to sell a property through a short sale, the resurgence of such buyers should give you hope: It is possible to buy a home after a foreclosure or other negative financial event.
Boomerang buyers are those home buyers who’ve been through some serious strife. Some may have lost their homes to foreclosure. Others may have lost them through the bankruptcy process. But now they are ready to buy again.
And the good news? They are slowly finding the mortgage financing they need to become homeowners again.
Did you lose your home to foreclosure? You might be able to buy again … if you took the proper steps following your financial troubles.
Many homeowners lost their residences because they lost their jobs, and their steady stream of income. Without that money, they could no longer make their monthly mortgage payments.
But many of these same consumers have now found work again. They are again building savings. And many of them have made sure to pay all of their bills on time and cut down on as much of their debt as possible.
Those who have taken these steps might have seen their three-digit credit scores slowly, but steadily, creep back to the levels they need to qualify for a mortgage loan.
If you are ready to jump back into the housing market after a financial crisis, here is what you need to know:
- You need to pay all of your bills on time: The more often you make your credit-card payments or auto-loan payments on time, the stronger your credit score will become.
- Cutting down credit-card debt can help: Eliminate as much credit-card debt as possible. This will make you a more attractive buyer to lenders.
- You might need a larger down payment: If you have a blemish on your credit report — such as a foreclosure or bankruptcy filing — you might need to come up with a larger down payment. If you can come up with enough savings to put down 20% of your home’s purchase price, you’ll greatly increase your odds of finding financing, even if you have a negative mark on your credit report.
Time is the great equalizer: Remember, too, that foreclosures and bankruptcies don’t remain on your credit report forever. Foreclosures fall off credit reports after seven years, as do Chapter 13 bankruptcy filings. Chapter 7 bankruptcy filings fall off your credit reports after 10 years.
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Will Millennials slow Chicago’s housing recovery? That’s a question addressed by Tribune real estate writer May Ellen Podmolik in a recent story.
Millennials, of course, are important consumers today. Companies want to capture their dollars. And these young consumers are reaching the age where they should be ready to buy their starter homes. But in Chicago and across the country, Millennials don’t appear as eager as other generations to become homeowners.
As Podmolik writes, the Census Bureau reports that about 31% of people from the ages of 18 to 34 are living with their parents. You can mostly blame the nation’s still sluggish economy for this; Podmolik wrote that most of the Millennials still living with their parents are doing so because they are either employed only part-time, don’t have enough income to move out on their own or are enrolled in school.
The worry? If this becomes a longer-lasting lifestyle trend, it could result in a smaller number of future home purchases. And that would only drag down the housing market in Chicago and across the country.
Millennials already are more likely than other generations to choose renting an apartment over buying a condominium or a single-family home. If a large percentage of them can’t afford to buy a house? That doesn’t bode well for future home sales.
My thoughts? There are plenty of reasons to buy a home. Real estate over the years has been a sound investment. If you hold onto a condo or single-family home for seven years or more — especially in a sound market like Chicago — the odds are high (though no one can predict price appreciation with any certainty) that your real estate will increase in value. And owning a home provides you with a sanctuary, a place to escape from the stress of the outside world.
We’ll see if Millennials come to understand this. My prediction is that they will, and that this appreciation will coincide with continued improvement in the national economy.
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Trying to sell a high-end Chicago home, one that you’d like to list for multiple-millions of dollars? Here’s a reality check: You might not be able to sell that home for as high a price as you’d like.
Chicago Magazine recently covered the state of the super-high-end market, those homes that cost $5 million or more. According to the magazine, these homes aren’t fetching the sky-high sales prices that their owners had previously expected.
This mirrors the Chicago market as a whole. According to the Chicago story, sales prices in the Chicago area appear to be leveling off after a 2013 that featured steady price increases. The story cites Svenga Guddell, the director of economic research at Zillow, who predicts that by the end of 2014 the median value of a home in the Chicago area — an area that includes more than just the city of Chicago — won’t stand much higher than $178,000. That’s where the median value stood at the end of 2013.
This trend of slowing price appreciation is especially noticeable in the high-end luxury home market. According to the Chicago Magazine feature, sellers are more realistic today about what their luxury homes are worth. The story says that as of early July, 11 residences were listed for sale in the Chicago area for $5 million or more. Five of these residences have since had sizable price cuts.
What might not be the best of news for sellers, though, is good news for buyers. Those buyers ready to buy a million-dollar-plus home now can purchase more property for their dollars. They might also find sellers who are more willing to negotiate on everything from the final sales price to closing dates.
As with any market, though, the key to succeeding in the luxury real estate market is to work with a skilled REALTOR®. This professional can help buyers find the perfect home at a fair price. And for sellers? A REALTOR® is especially important for homes that cost $1 million or more. A far smaller number of potential buyers exist for these pricey properties. REALTORS® can help sellers’ market their homes to the largest swath of these high-end buyers.
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Crain’s Chicago Business recently attempted to sum up the current state of the Chicago housing market. Crain’s conclusion? It found four signs that the Chicago housing market was in solid shape and a potential red flag that future problems might await.
First, the good news. Crain’s reported that in June non-distressed homes — homes that were not sold through the foreclosure or short sale processes — accounted for nearly 78% of all the home sales in the Chicago region. This is the highest that this figure has been for at least 3.5 years, according to the Crain’s story.
Don’t believe that the region is free of its foreclosure problems. As the Crain’s story says, Illinois is still struggling with the 3rd highest foreclosure rate in the country. But the high percentage of non-distressed home sales in June is certainly a good sign.
Crain’s also reported that Chicago-area homes are taking less time to sell. In June, homes in the area sold in an average of 71 days, according to Crain’s, about 25 days faster than during the same month one year earlier. And back in 2011, it took Chicago-area residents an average of 180 days to sell their properties.
In more positive news, the rate at which local home prices are appreciating is slowing. That might sound like bad news. But as Crain’s explains, no one wants to see housing prices rise too high too quickly. That happened before, and it led to the housing crash that started in late 2006 and early 2007.
Finally, the number of home sales in the Chicago area is on the rise again, Crain’s said. In June, the nine-county Chicago area saw 8,801 home sales. That was up 10% from the 7,998 homes sold in June of 2013, according to Crain’s.
The news, though, isn’t all good. Crain’s said the number of homes available for sale in the Chicago area continues to be too low for demand. That is making life difficult for potential buyers who are struggling to find homes in the most desirable of Chicago neighborhoods.
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