Credit Score and PMI Explained

One of the most important aspect of any person’s financial profile is their credit score.  This is the first thing all creditors look at when making a credit decision for an applicant.  Someone’s credit score will help determine whether they will get a loan or not, and more importantly, what that loan will cost.  The lower the credit score, chances are it will come with a higher interest rate. Conversely, a higher credit score is going to get someone a better and more competitive rate.

This is true when buying a home as well.  Not only will a higher credit score give someone a better interest rate, but if they are putting down less than 20% for a down payment, it will also affect how much they will pay in PMI.  PMI stands for Private Mortgage Insurance.  If a homebuyer wants to buy a house with less than 20% down, most banks won’t make that loan.  The reason is, there isn’t enough equity to pay back the bank loan if the house goes into foreclosure if there is only 5% in equity.  So PMI was recreated in the 1950’s to allow homebuyers to buy a house with less than 20% downpayments (previous to that PMI existed but the industry went bankrupt after the Great Depression).  PMI is commonly paid a few ways today, monthly, upfront or lender paid.  You may hear that someone may not have to pay PMI with less than 20% down, but the fact is it’s Lender Paid and built into the interest rate.  That interest rate being higher than paying PMI monthly.  You can also pay it all at once upfront at closing, which can be up to 60% cheaper than paying it monthly if you add up all the payments over time.

PMI rates are based on just a few factors.  First and most important being the credit score, second the down payment amount (also known as Loan to Value or LTV) and the last items are the type of house and how much debt that person has each month.  A condo could be slightly higher in premium while higher down payments lower the PMI rates.

At the end of the day people just want the lowest possible payment, and that is going to happen with higher credit scores.  Most mortgage professionals want their clients to have higher credit scores, as it makes the deals easier and cheaper for the client.  If you want to learn more about your credit score, please feel free to contact me and I can provide a no cost credit report and debt to income analysis.  If your credit needs to be worked on to get it higher, we can help there too.

Brandon Pratt NMLS #46922

Pratt Sign

A New Home for the Holidays?

Every day people ask me when is the best time to buy a home.  Without fail, I usually say it’s one of two times a year….July 4th to Labor Day and Thanksgiving to Valentines Day.  We are currently in one of those times of the year, but this year seems a little different. Let me explain why these two times of the year are good to be a home buyer.

First reason why these times of the year are best for home buyers is simple, less demand and less people.  These are the two times of the year where people take vacations around holidays.  July 4th to Labor Day, everyone is at the beach, on their boats or someplace having fun.  It’s not a time to think about school systems and uprooting their kids before school starts for the year.  So it’s a good time in the real estate business to take a break that time of year.  The other time, Thanksgiving to Valentines is a longer period of time, and a little more complex.  This time of year you have people travelling for the holidays, the holidays themselves and vacations through the new year.  The January to Valentines period is the lull before the spring market.  This is a result of some real estate agents feeling sellers must wait for the leaves to come out and the grass to turn green before they list their house for sale, so the pictures online look better.  Plus there is snow, sand and salt that sellers need to clean up after open houses.  Because of this thinking, what you get are frenzies during the home buying year with a flood of sellers and buyers, that makes certain times of the year harder to buy and sell than others.

The good news is that there are people like myself who feel it’s best to wait for these spurts to subside and try to get better deals.  The old saying is to buy low and sell high.  So I usually advise people to sell during the busy periods, wait a couple months, and then buy during a slower period of time.  The end of the year is especially true as interest rates usually drop (at least become more stable), less buyers are looking at houses, desperate sellers wanting to get rid of their homes before years end and potential tax considerations.

So do I feel that way in 2018?   The answer is kind of.  I’m finding this holiday season turning into one of the busiest home buying seasons in memory and it’s exactly for the aforementioned reasons.  Interest rates are rising, and are projected to continue to do so.  Interest rates today are anything but stable, with the stock market moving up and down 300 points on a daily basis, and murmurs of a bear market in the distance.  There are more people out and about during this holiday than years before, and that’s because prices are dropping for the first time in a while.  And according to MLS data, single family homes that are currently for sale in Gloucester at all price ranges are averaging 119 days on the market.  During the spring and summer, there were multiple offers on every house after the first open house, with the sales prices routinely going above the list price.  Now homes are sitting longer, prices are dropping and rates are rising.

So is this the time to buy a home?  Well it depends on a lot of factors.  The first step is you need to talk to real estate professionals, and first is a mortgage banker like myself.  A mortgage consultation is always free, so you have nothing to lose.  You can get your credit run for free, receive a complimentary debt to income analysis and preapproval letter if you qualify.  From there you can talk to a real estate agent, because now you now what you can afford, where you can afford and what it will take to buy a home.  Plus one of the first things a real estate agent is going to ask, have you been preapproved by a reputable lender?

So is this the season to buy a home?  Let’s find out.

Brandon Pratt- NMLS 46922

CrossCountry Mortgage, 180 Main Street, Gloucester, MA

Direct 617.688.6891 and

NMLS3029 | NMLS1605090

CrossCountry Mortgage, Inc. is a licensed mortgage lender in the Commonwealth of Massachusetts.

Licensed by the New Hampshire Banking Department