Home buyers save a lot of money by focusing on their credit scores.

When people start the process of buying a home, there are a lot of things to focus on: which neighborhood they want to live in, finding the perfect house, getting approved for a mortgage at a great interest rate, and then the all-consuming process of packing and moving. But before any of that happens, there is one more item that should lead off their checklist: taking care of their credit score.

While a significant portion of homebuyers still pay cash for their homes (a reported 4 out of 10 buyers paid cash in 2014!), but the majority of buyers still need to take out a mortgage loan. So keeping your credit score iup to par has some very tangible benefits during the home buying process:

• Lower interest rates,
• A greater variety of loan programs available,
• Qualify for loans with less money down,
• Your offer on a house will be seen as more favorable if you have a high credit score, giving you more leverage. During multiple offer situations and bidding wars, the seller sometimes requests additional documentation like proof of the buyer’s credit score and funds.
• But, of course, saving money when you make your mortgage payment every month is the real benefit. Even a credit score increase of a few points may help you qualify for a lower interest rate, adding up to tens of thousands of dollars in savings over the life of your loan.

Consider these three scenarios, where three consumers who are buying a $400,000 home, with a $320,000 mortgage, qualify for interest rates of 4%, 4.5%, and 5%, respectively. Please note this is just an illustration for educational purposes.

Interest Rate: 4%
Monthly Payment: $1,527
Total of 360 Payments: $549,982.42
Total Interest Paid: $229,982.42

Interest Rate: 4.5%
Monthly Payment: $1,621
Total of 360 Payments: $583,701.48
Total Interest Paid: $263,701.48

Interest Rate: 5%
Monthly Payment: $1,717
Total of 360 Payments: $618,418.51
Total Interest Paid: $298,418.51

That means if your credit score was top notch and you qualified for a 4% interest rate (hypothetically), you’d save $190 a month compared to the 5%, and $94 compared to the 4.5% loan. That sounds nice, but doesn’t seem like big money, right?

But when you compare the long-term savings, the person with the 4% loan saves $68,418 in total payments over the life of the loan compared to the 5% loan, and $33,719 compared to the 4.5%

That’s some HUGE savings for just a very small interest rate difference. So how do you make sure your credit score is ready for the home buying process?

First off, it’s important to understand that the scoring system used by FICO (the Fair Isaac Corporation) is the most popular credit reporting metric, acceppted by almost all mortgage lenders. FICO scores range from 300-850, with a 680 considered good and above 720 an excellent credit score.

So what credit score should you aim for? In fact, 32.8 million people have FICO scores between 700 and 749 but approximately 70 million consumers with FICO scores above 760. But that’s just base camp on the credit score mountain because roughly 36.4 million people have scores between 750 and 799 and 38.6 million are in the 800-to-850 range. Only about 1% of people with FICO scores, around 2 million individuals, ever reach the summit with a score of 800-850.

Your score is calculated based on these factors:

30% Credit utilization (Ratio of debt versus available credit.)
35% Payment history.
10% Mix of credit.
10% New credit.
15% Length of credit history.

So here are some tips to make sure your credit score will be as high as possible when you’re ready to buy a home:

1. Always pay on time.
According to FICO, 96% of people with a FICO score of 785 or greater have no late payments on their credit reports, so be one of those people who have a spotless payment history if you want the perfect FICO. Since payment history is 35% of FICO’s scoring model, paying on time is crucial.

2. Check your credit report periodically.
It's important to make sure that there are no errors on your credit file and everything is in order. These days, you also need to make sure that your identity hasn't been stolen or compromised, which effects up to 1 in 8 Americans every year.

3. Spend less and pay down your balances.
FICO calculates a significant portion of your score by your credit utilization ratio – how much debt you keep to how much your total available balances are. A survey of those who had the top scores revealed their average credit card balances relative to their limits was just 7%.

FICO calculates 30% of their scoring model by the overall money you owe and how close you are to the limits on your credit cards and revolving debt, so low balances and healthy ratios are the key to a top score.

4. Keep a good mix of credit.
Consumers with FICO scores above 760 have, on average, six accounts that are currently “paid as agreed” and an average of 3 accounts with a balance.

5. Keep well-seasoned accounts.
Most super scorers also have, on average, an oldest account that’s 19 years old. The average age of their accounts is between 6 and 12 years old and they opened their most recent account 27 months ago or more. 15% of FICO’s scoring is calculated by the credit history.

6. Start early.
Don’t wait until your ready to start looking at houses or apply for a mortgage to start working on your credit. Get a copy of your credit report for a detailed look both 6 months and then 3 months before you’re ready to apply for a mortgage. That will give you plenty of time to pay down debt, close unwanted accounts, or dispute errors and inaccuracies in order to maximize your score.

7. Do’s and Dont’s during the home buying process.
It’s important not to make big changes during the mortgage process, as it may trigger a red flag for lenders, who are trying to make decisions based on a static snapshot of your finances. Avoid big purchases on credit, moving large sums of money to and from bank accounts, and applying for any new credit or closing existing accounts.

8. Consider getting help.
Whether you sit down with a mortgage professional, bank representative, non-profit counseling center, or a good, trusted credit repair organization, it will help to get advice about improving your credit score from a pro.

8 Things home buyers should understand about title insurance.

1. What is title insurance?

Title insurance is a policy that protects against loss if there’s a problem with the condition of the title of the land (and residence, lot, building, etc.) that was purchased in a real estate transaction. Title insurance is a protection for you and your lender that the property is what it claims, is yours, and no one else has a claim, lien, or encumbrance. Think of it as your proof of ownership.

2. Why is title insurance necessary?

Your home will probably be the biggest investment you make in your life (along with “buying” your mortgage) so you want to make sure there are no problems with legal ownership. A title insurance policy will legally ensure you receive benefits of ownership including the right to occupy and use the property, it’s free from debts or obligations not yours, and that you’re able to sell or pledge the property as security for a loan without issue.

3. How does title insurance differ from casualty or other types of insurance?

With most other types of insurance, you pay premiums every month or year on an ongoing basis, as long as you hold the property or benefit being received. But with title insurance you pay only once – when the policy is originated and before the real estate transaction is concluded. All of the work to identify and eliminate risk with the property occurs before you assume legal ownership.

4. Why does a homeowner need a title insurance policy and a lender need its own policy?

Both the buyer and the mortgager need a title insurance policy in any real estate transaction. Two different policies mean that both interests are protected against title defects. Of course there is great overlap in interest in the property, but remember that most mortgages don’t equal the full replacement cost of the property.

5. What would title insurance do for a homeowner if there were a problem after the sale?

Most problems are identified and resolved before the transaction every closes (as title insurance is supposed to do), but in rare circumstances there are issues that arise. A homeowner’s title insurance would cover the legal cost of defending their interest in the property and resolving the matter. It would also cover indemnification against losses causes by any claims. Remember that anyone can make a claim against title or take a case to court – whether or not it’s right or justified – so it’s essential to be insured.

6. Who pays for title insurance?

It’s mostly customary for the real estate buyer to pay for their own title insurance policy in California, though in some counties the seller may split the cost. The cost of a title insurance premium is written into the closing costs of the transaction. It's usually the buyer's choice what title company they'd like to use.

7. How long does coverage last?

Your title insurance policy lasts as long as you have an interest in the property. When you pass away the title coverage automatically extends to your heirs. And if you sell the property, your title insurance policy adds a level of warranty or protection to the next buyer, like links in a strong chain.

8. What exactly is covered by title insurance?

There are several types of policies, but these are some of the basic risks covered:

Forgery and impersonation;

Lack of competency, capacity or legal authority of a party;

Deed not joined in by a necessary party (co-owner, heir, spouse, corporate officer, or business partner);

Undisclosed (but recorded) prior mortgage or lien;

Undisclosed (but recorded) easement or use restriction;

Erroneous or inadequate legal descriptions;

Lack of a right of access; and

Deed not properly recorded.

An extended coverage policy may be requested to protect against such additional defects as:

Off-record matters, such as claims for adverse possession or prescriptive easement;

Deed to land with buildings encroaching on land of another;

Incorrect survey;

Silent (off-record) liens (such as mechanics' or estate tax liens); and

Pre-existing violations of subdivision laws, zoning ordinances or CC&R's.

Subject to availability in your locale, First American's EAGLE Policy covers all of the risks listed above, plus:

Post-policy forgery;

Forced removal of improvements due to lack of building permit (subject to deductible);

Post-policy construction of improvements by a neighbor onto insured land; and

Location and dimensions of insured land (survey not required).

What every homeowner needs to know about lead based paint.

Buried somewhere in the stack of paperwork when you buy or sell your home in California, a single form stands out: the lead based paint disclosure. In fact, if you are buying, selling, or renting out a home that was built before 1978, federal law requires certain information about lead based paint is provided, buyers have a 10-day period to check further for lead, and landlords must disclose specific knowledge or warnings to tenants.

Most people sign it and move on, but it’s important to know why that disclosure is in there and why understanding the risks of lead based paint is so vital to keeping your family safe.

About Lead-Based Paint.

Before the 1980s, the presence of lead was widely used in many products, most notably as an ingredient in the gasoline we bought at the pumps and in common house paint. Once it was found to have extremely adverse health effects, the federal government banned the use of lead in those products. (Have you ever noticed we pump only unleaded gasoline these days?) 

While lead in paint used by consumers was banned in theory in 1978, it was still allowed as a trace element, with the maximum legal percentage decreasing over the years.  In 1965, most house paints contained 50% lead. In 1965 that was dropped to 1% and followed a schedule of reductions from there, including .25% in 1992 and 0.1% in 1997.

Where can you still find lead paint in the home?

Obviously, if your home was built before 1978, there is a good chance you have lead based paint in your home. Lead based paint was popular because of the nice sheen and durability it provided and most commonly used on:

Stairways

Railings

Bannisters

Porches

Doors and door frames

Baseboards

Painted radiators and pipes

Windows, and window stills

The health hazards of lead based paint.

Lead is a highly toxic metal that can cause a variety of serious health issues if ingested or absorbed into the body. When absorbed into the body, lead can cause:

Brain damage

Kidney damage

Nerve damage

Blood disorders

High blood pressure

Digestive problems

Muscle and joint pain

Memory and concentration problems

Stomachaches, nausea, tiredness and irritability

If a woman is pregnant and takes in lead based paint traces, it can inhibit the development of the fetus or cause high blood pressure in the mother.

What about children?

Young children are especially susceptible to the dangers of lead based paint. In children, lead based paint poisoning may manifest as:

Nervous system and kidney damage

Learning disabilities and attention deficit

Speech, language, and behavior problems

Poor muscle coordination

Decreased muscle and bone growth

Hearing damage

Seizures

How does lead paint get transmitted?

The biggest risk is if little children eat paint chips that contain lead, put their hands on lead-based paint dust or paint chips and then in their mouths, or play in lead-contaminated soil. Likewise, adults or children who breathe in lead dust are at risk.

Children under 6 years old are particularly susceptible because their brains and nervous systems are more sensitive to the toxicity of lead. Small children often put their hands everywhere, are crawling or playing on the ground.

Are you automatically in danger if your home was built before 1978?

The good news is that the presence of lead paint doesn’t mean you’ll get sick or have health issues at all. Lead only becomes transmissible when it’s disturbed and then ingested, so if the paint is in good condition and not absorbed, there’s no problem. Like we mentioned, that usually happens when paint is flaking or peeling and small children then pick it up, eat it, or get it on their hands.

But it can also easily happen when remodeling a home built before 1978 because of the dust caused during the construction process. When surfaces are agitated by sanding, scraping, grinding, chipping, sand blasting, or torn out for demolition, lead based particles can become airborne in the dust and easily breathed or ingested. Any construction processes that use heat guns or open flame torching are also particularly prone to activate lead.

It’s not just those places we mentioned before where lead based paint was prevalent, but homeowners should be cautious about peeling paint on ceilings, walls, metallic surfaces, enamel paint, and primers that were pink or red.

What precautions can you take against lead based paint?

 If you have peeling or flaking paint, controlling dust and any loose particles is key.

Wipe down flat surfaces with a damp paper towel and then discard of the towel immediately.

Wet mop floors to keep dust down.

Vacuum carpets regularly in rooms you suspect have lead based paint. You can find a good vacuum with a HEPA filter or a "higher efficiency" collection bag.

If you do find loose paint chips, pick them up with a damp paper towel and discard of them and the towel immediately in a closed container.

Look out for exterior porches, bare patches in the soil or garden, and other areas children may spend time.

How about remodeling?
When remodeling it’s especially important to be cautious of surfaces constructed or painted before 1978.  Make sure to contain dust in any room you’re working in with plastic covers and door slips. Plastic off air vents and registers so lead particles don’t get sucked up into the heat and AC ducts. Use certified contractors who follow all the precautions and federal and state guidelines for lead. 

But remember that if you do find lead paint, it doesn’t mean you have to go through a lengthy, intensive, and costly abatement process like with asbestos. If lead paint is in decent condition, you can paint over it with several coats of modern, lead-free paints, which will effectively seal the toxic lead as long as the surface coat is in good shape.

Testing for lead in the home.

There are several ways you can also easily test your home for harmful lead. There are DIY kits you can purchase at Home Depot or hardware stores that allow you to test paint, more sophisticated measures used by professionals, or you can call in a local or federal agency to test if you suspect high levels of lead. The government has set out acceptable levels of lead in the home as:

40 micrograms per square foot (μg/ft2) for floors, including carpeted floors

250 μg/ft2 for interior windows sills

400 μg/ft2 for window troughs

400 parts per million (ppm) and higher in play areas of bare soil

According to the Centers for Disease Control, lead levels above 5 micrograms per deciliter are cause for alarm and public health action.

If you rent your home then ask your landlord to address any peeling or flaking paint and document everything. If you’re a landlord, your responsibility starts with knowing when your home was built, last painted or remodeled, and if there’s the possibility for loose lead based paint.

Have your children tested.

It’s important to have all children tested for lead levels in their blood, optimally between the ages of 1 and 2 because their lead blood levels tend to rise sharply between 6 and 12 months. They should have a second test between the ages of 3 and 6 because levels tend to peak around 24 months of age. Your state or local health agency has recommended screening plans they outline, and doctors and family physicians are aware of these issues.

Where to get more information about lead hazards:

U. S. Department of Housing and Urban Development (HUD)

Consumer Product Safety Commission (CPSC)

U.S. Environmental Protection Agency

National Lead Information Center at epa.gov/lead, or contact at 1-800-424-LEAD.

Research shows attractive people do better in business except in two professions. The first is bank robbers…and the second one will shock you!

Are better looking people more successful at business? Research by Daniel Hamermesh, professor of economics at the University of Texas, shows that good-looking people have many advantages in life, and it seems we can add success in business to that list. And you’ll probably be shocked how prevalent the difference is between earnings and workplace success between people who are deemed attractive versus their plain Jane counterparts.

In fact, numerous studies reveal that attractive people earn on average three to four percent more than their coworkers and peers who are less than attractive. That can add up to big money – about $230,000 over the lifetime of a working adult – just because a person was born with natural good looks. Even average looking people make on average $140,000 more than someone who is considered ugly. Data also suggests that attractive people make more money but get more raises, get hired more, and generally have more job opportunities. But they also are bigger earners, more productive, and sell and close more business when in sales.

While it’s certainly not fair that the pretty people get paid more (unless they’re models, actors, or spokespeople on The Price is Right), there’s no denying the correlation. But what does it actually mean?

But are good-looking people more successful because of their inherent traits and characteristics, or are people more successful just because they are easy on the eyes? Do their good looks breed naturally breed better confidence and force of personality that further perpetuate their perception as good looking?

Researchers at Rice University sought that answer when they engaged a study on beauty’s effect on success using clinical means. They looked at only facial appearances and their effect on success. The study concluded that people with birthmarks, scars, and other blemishes were more likely to be rated poorly by their interviewers. The interviewers tended to remember much less about these candidates – both in personal information and interview content - than candidates with unblemished and more attractive faces. Of course that resulted in lower interview ratings and less jobs awarded.

Other studies show that people with good looks are perceived as happier, have higher self esteem, more skilled, personable, capable, and more intelligent than cohorts with average looks. This is often described as the “Halo Effect,” where people automatically make positive assumptions based on someone’s good looks.

Another interesting study isolated perceptions by letting participants talk to a person on the phone, but then showed them two different photos of the person. When they thought they were talking to a more attractive person, they described them as being more warm, personable, and even smart.

Interestingly enough, good looks have been found to be even more important for a man in the workplace than they are for women. An attractive woman gets an 8% wage bonus if her looks are rated above average, or a 4% penalty for below average looks, or a 12% total swing. Men only receive a 4% wage bonus for good looks but get dinged a 13% penalty if they are homely, for a 17% swing.

Why is that? Like many things with human beings, the reasons we do things funnel down toward primal urges the longer we scrutinize them. Along with the Halo Effect, we tend to just be attracted to good looking people because they are perceived as healthier, stronger, and better perpetuators of the human race. We want to know them, be associated with them, and naturally insert them into our society’s leadership positions. Even today, we haven’t evolved out of our primal nature and that desire to be around people who are more attractive results in higher wages and a faster track to success at the office.

While this behavior may be socially reinforced, it is nature, not nurture, as the culprit in this case. New studies by the Society for Research on Child Development show that even children and adolescents who are rated as more attractive get higher grades and go on to college more.

Are there any exceptions to this rule that attractive people thrive in business? Why yes, there are – and this is where it gets fun. According to a study published in Applied Financial Economics, there are at least two professions where there is a negative correlation between attractiveness and success.

The first is armed robbery. That’s right, if you chose the vocation of robbing banks at gunpoint, your ugliness will be an asset, probably because looking mean, violent, and scary is beneficial in that line of work. Interestingly enough, this only applied to low-rent smash-and-grab robbers – white-collar criminals did far better when they were better looking.

The second line of work where bad looks help may shock you – real estate. Yes, research proves that real estate agents who have above average looks are less successful. This goes against everything we assume in the business, where suave male agents with business card photos like James Bond and elegant female realtors with the air of super models spread their likeness on door-to-door flyers, social media sites, and even bus stop benches. But the study by Applied Financial Economics found quite the opposite to be true.

The study downloaded thousands of photos of real estate agents at random from an online database. They then asked neutral observers to rate the person’s attractiveness on a scale of 1 to 10, with 10 being the most attractive.

They then looked up the agents’ listing and sales statistics from their respective companies and averaged earnings for everyone who was a 10, a 9, etc. all the way to the 1’s. 

What they found shocked them – the realtors who were average or slightly below average looking far outperformed the better-looking agents. Further research concluded that the more beautiful agents took longer to sell houses, closed fewer deals, and brought less money into their companies. There are several theories to this, but the general conclusion is that the most attractive agents use their beauty as a crutch – not as an asset to complement their business.

Fascinating! Do you have any other thoughts or theories about this?

10 Important things to consider before you purchase a condominium. (Part 2, 6-10)

Across the United States, the emerging trend is people who choose to live in urban centers for the lifestyle it offers; arts and culture, shorter commute times, access to public transportation, and plenty of choices for restaurants, cafes, and shopping. This “Smaller square footage but bigger life,” movement also leads these new urbanites – spanning from Millenials all the way to retired seniors – to look to condominiums as a home base. Condos are far less expensive than trying to find single-family houses in densely populated cities and the utilities are often lower. They require little or no maintenance, so owners can spend their weekends with their friends and hobbies instead of mowing the lawn and tackling long honey-do lists. Condos also commonly offer built-in amenities like parking, swimming pools, work out rooms, and recreation.

1. A solid plan.

Whether an investor or homeowner, everyone wants to make the most possible money on their real estate investments. But too often, people purchase condos without a solid plan. That plan should include a comprehensive budget that includes expenses like property taxes, special assessments, condo dues, and all mortgage and utility costs. To be conservative, estimate your costs to be 15% higher than they are now and if you’re renting it out, factor in possibly vacancies and even evictions.

The most important part of your plan should be an exit strategy. Do you plan to sell and move “up” to a house in a couple years? Keep it forever and rent it out when you move? Or stay there for the long term? Condos are often much harder to sell than single family houses for reasons we document here, so you may be “stuck” in the property for much longer than you think. Since the value of condos can be so volatile and dependent on so many factors outside your control, don’t bank on having significant appreciation. As an investor, it’s recommended you focus on an income approach instead of capital appreciation, meaning you should make sure it cash flows on a monthly basis instead of waiting around for it to rise in value.

2. Special assessments.

If you own a condo, “Assessment,” is a bad word because it means there are big improvements needed but not enough cash to pay for them. Special assessments collect reserves for future capital improvements like new roofs, windows, paving parking lots, or HVAC replacement. Each owner is required to pay his or her pro rata share of these expenses. Obviously, these assessments can up to tens of thousands of dollars or much more, so request the condo’s budget before you buy and research what improvements are coming – and anticipate an assessment at some point.

3. The condo association.

As a good rule of thumb, you aren’t just buying the condo but the condo association as well, and your experience as an owner will only be as good or bad as they allow. That’s because almost every single decisions is dictated by the association’s bylaws. A good association can protect your values and make sure everything runs smoothly. But an association that is inefficient, absent, negligent, or just plain abrasive can spin the condo community into chaos. Scrutinize their bylaws before you buy, as they may have restrictions on renting the condo you need to know about. It’s also a good idea you meet the association staff before hand to feel them out, as well as request their budget to show you they have enough reserves and how much debt they are carrying and the percentage of owners who are not paying their dues. Also, knock on a few doors and talk to people who already live there and see what they think of the association’s body of work.

4. Condo fees.

While single-family homes may cost more, don’t forget that condos have significant monthly association fees. These fees are collected by the association to cover the cost of services, like trash hauling, exterior painting, and landscaping, etc. Condo fees also cover the property’s master insurance policy, maintaining swimming pools and fitness rooms, condo staff, and professional services like lawyers and accountants when needed. These fees could range from a hundred dollars all the way to a thousand dollars for luxury condos in big cities, but even the average two hundred dollar bill should be anticipated and factored into the owner’s expenses. 

5. Improvements.

When you own a single family home, you are free to improve the property and make as many upgrades as you wish. Weekend projects like tiling floors, adding new light fixtures, and even landscaping add up to better values over time. But with a condominium, there is very little you can do – or are allowed to do – to improve your property. Other than just painting your interior walls, every alteration or improvement usually needs to be ok’d by the condo board, who has no interest in approving big projects that will change the floor plan or make other units look obsolete. If the condo board does approve a remodel, owners often make the mistake of over improving their property, rendering it far different than other units. But when it comes to sell, potential condo buyers are looking for conformity, not to purchase the outlier, so it’s often harder to unload instead of going for a higher price.

If you'd like to read #1-5, click here, and email us for real estate help any time!