The Not-So-Secret FICO Formula behind SW Florida Home Loans, Naples, Ft. Myers, Bonita Springs, Marco Island, Lehigh Acres. When anyone is in the early stages of finding a SW Florida house to buy, unless they are planning to pay for it with cash, a large part of what eventually happens will be determined by the home loan they secure. Both the size of the home loan and its interest rate are negotiable, but in almost all cases, the applicant’s part of the “negotiation” consists of comparing offers from various SW Florida home loan providers.
So unless you are The Donald (or can supply your own wheelbarrow full of cash), SW Florida’s mortgage companies will have a large say about what they think you can afford for your next home. Even though they represent totally different entities, their decisions tend to be awfully similar. The reason for that is that they all work from similar information: your assets, your current ability to generate cash— and your FICO score.
If you have ever suspected there is some kind of mysterious secret formula involved in coming up with that last, your suspicion was valid. But your FICO score isn’t a total mystery—some parts of their formula have been (however grudgingly) made public. Since the system is so pervasive, it’s good to know as much about it as you can.
To begin with “FICO” is just a company name. Back in the 50s, Bill Fair and Earl Isaac got together and engineered a credit scoring system, and so Fair Isaac COmpany was in business. Once Fannie Mae and Freddie Mac began to use them, it became a very good business. Now all the major consumer reporting agencies (Experian, Equifax, TransUnion—even PRBC and Innovis) use them. As to how they come up with their all-important scores, FICO has published the exact formula (sort of):
• 35%: Payment history: If you have or don’t have derogatory information, like bankruptcies, liens, judgments, settlements, charge offs, repossessions, foreclosures, or late payments. It makes up more than a third of your score.
• 30%: Amounts owed: Your current state of indebtedness.
• 15% Length of credit history: This one is why borrowing anything early on in your consuming career is a good idea. A long history makes you more trustworthy.
• 10% New credit: Have you recently been opening credit accounts all over the place? That’s probably not a nifty idea.
• 10%: Types of credit used: A variety of the kind of borrowing you have done also makes you more trustworthy: revolving credit cards, car loans, home loans and lines of credit all broaden your appeal (at least the way FICO sees things).
That sounds reassuringly cut-and-dried—but before you relax, remember that ‘sort of’ we began with? As one analyst writes candidly about the Types of credit used category: “It carries the same weight as the New credit category…but in reality, the two categories aren’t quite equal.” If you had been under the impression that 10% = 10%, you now know otherwise. Also, FICO itself states that the percentages it makes public “are for the general population. For particular groups…the relative importance of these categories may be different.” In other words, the percentages are hard and fast, unless you are in a particular group. If you ask what is considered ‘a particular group,’ it gets mind-numbingly confusing. Sort of like the sound of FICO clearing its corporate throat and changing the subject…
The Not-So-Secret FICO Formula behind SW Florida Home Loans, Naples, Ft. Myers, Bonita Springs, Marco Island, Lehigh Acres. Nonetheless, knowing just this much about what’s behind a SW Florida home loan originator’s decision will stand you in good stead when it comes to securing your next home. Another canny move: give me a call right from the start!
International Home Buyers Bid Up U.S. Sales, Naples, Ft. Myers, Bonita Springs, Estero, Marco Island, Cape Coral. SW Florida homeowners could benefit if the influx of international home buyers continues to expand. According to a study from the National Association REALTORS®, the trend in that direction has been accelerating. In the most recent release covering the twelve-month period ending last March, foreign nationals are reported to have spent more than $92 billion in the United States for the year.
That’s growth at a blistering pace: an increase of 35% over the $68 billion spent in 2012!
How SW Florida homeowners stand to benefit from the increase in foreign buyers has a lot to do with today’s changing real estate marketplace. Since international home buyers need to learn as much as possible about a property from afar, the improvements in online presentation serve a very necessary purpose. When one of our SW Florida listings includes an extensive selection of photos or video footage, it becomes a legitimate part of the emerging international marketplace. Combined with today’s easy-to-navigate links to detailed information about SW Florida ’s neighborhoods and local amenities, a local property is realistically accessible to buyers from anywhere in the world.
Last year’s foreign sales were split almost equally between foreign buyers whose primary residence is outside the country and those currently living here. Not surprisingly, the greatest number of sales—19%—came from Canadian nationals, closely followed by the Chinese (16%) and Mexicans (9%). Both Indian and United Kingdom nationals weighed in with 5% of last year’s purchases, while lesser percentages of international home buyers hailed from Germany, followed by the French, Brazilians, and Japanese.
The NAR study also delved into the reasons international home buyers increasingly favor U.S. properties—although the answers were wide-ranging. For some, it was the investment potential that was the biggest draw: owning U.S. properties is seen as a solid way to diversify foreign portfolios. International buyers value the relative economic stability and attractive prices present in our real estate market. Other buyers are relocating to the United States for professional reasons, while still others purchase a property for children attending college.
One aspect that SW Florida property owners might find interesting is that international home buyers tend to purchase higher-priced houses. That might be due to the impact of the Chinese buyers, whose primary focus is in areas like New York and California where properties are more expensive. In contrast, Canadians are more likely to purchase in lower-priced areas of the country. This is one reason why, although Canadians purchased more properties last year, the amount they spent ($13.8 billion) represented a slight decline from the previous year.
International buyers have another standout attribute that SW Florida home sellers should find attractive: they are more likely to pay entirely in cash! About 60% of all purchases made by international home buyers required no financing—that’s up a third from 2007. When you consider the average sales price, it represents a fairly hefty cash infusion.
International Home Buyers Bid Up U.S. Sales, Naples, Ft. Myers, Bonita Springs, Estero, Marco Island, Cape Coral. If your own SW Florida home will be on the market soon, I hope you will give me a call to discuss how we can create a strong presentation for local and international home buyers alike!
A SW Florida Short Sale Can be Anything but a Shortcut! Naples, Ft. Myers, Bonita Springs, Estero, Cape Coral. The term “short sale” has been misleading people for decades. Despite the name, it’s a term applied to transactions that often involve a lengthier-than-usual sale process. A SW Florida “short sale” is named for the financial aspect of a sale rather than the length of time it requires. It’s anything but a shortcut.
The ‘short’ in ‘short sale’ describes a sale at a price that comes up short—is less than the full amount owed on an SW Florida home loan. As you’d guess, whether a bank (or any mortgage holder) accepts such a sale is a decision that is up to the lender.
Why would a bank choose to move ahead with a short sale instead of holding out for the full amount? After all, if a borrower is unable to pay, it’s hardly the bank’s fault. You might think that it is always in the bank’s interest to hold out for full repayment, and to take possession of a mortgaged property whenever that doesn’t happen…but in reality, that’s often not true. In the real world, the bank will lose money on either a short sale or a foreclosure—but the latter is often more expensive, since it requires the bank to do the expensive work of repossession and selling the property.
To a distressed homeowner, a short sale is an opportunity to close accounts on better terms. Instead of weathering a foreclosure, which would result in a major strike against his or her credit record, if the bank will agree, it becomes a joint resolution between the debtor and bank—and that doesn’t just sound more amicable. But getting the lender’s approval is where the delay issue usually crops up. The steps needed before the mortgagee and the bank agree to sell the home at the lower price vary. They can involve submitting a buyer’s discounted offer, or the borrower convincing the bank that a short sale is warranted—usually after following procedures spelled by the bank. The bank can (and usually will) reject a short sale proposal or offer if it feels more money can be gained by foreclosing. And it can take a while…
It may sound like a happy solution for homeowners with financial problems, but among other drawbacks (for instance, there can be tax issues), the “a while” it takes to close a SW Florida short sale can be between five and seven months! Yet for patient (or even better, very patient) buyers and sellers, a successful SW Florida short sale can yield the best of a bad situation and an unmatched bargain.
A SW Florida Short Sale Can be Anything but a Shortcut! Naples, Ft. Myers, Bonita Springs, Estero, Cape Coral. There are endless variations for how any given short sale can proceed, so having an experienced REALTOR® in your corner is always a good idea…and calling me is the way to start!
5 Very Good Reasons for Using a SW Florida Buyer’s Agent, Naples, Ft. Myers, Bonita Springs, Cape Coral, Golden Gate Estates. They don’t teach this in high school, but maybe they should. The difference between a SW Florida buyer’s agent and a SW Florida seller’s agent can be pivotal, yet first-time home buyers have to figure that out on their own. You can read quotes on the web that say things like, “I looked for a buyer’s agent instead of a real estate agent” (true story!) that illustrate how little knowledge is out there. It wouldn’t take much classroom time to explain that buyer’s and seller’s agents are both real estate agents, after all. And while the subject is being explained to the class, I’d put in these five very good reasons for using a buyer’s agent in SW Florida home purchases:
1. There for You
A buyer’s agent is by definition obligated to promote the interests of you, the buyer. When you are being shown a home by a personable real estate agent, it’s tempting to simply go with that agent, who may be quite a nice person. After all, he or she knows the house and knows the seller. But the problem is that the agent is duty-bound to act on behalf of the seller—and in any business negotiation, you want somebody who is unequivocally in your corner. Especially since
2. It’s Free!
A buyer’s agent is compensated through a commission. In this case, it is paid out of the proceeds from the sale price of the house. You’re reading that right: since it issues from the sellers’ proceeds, you get the service for free! Of course, the size of commission the buyer’s agent receives can impact negotiations if the seller thinks the rate is unreasonable. Remember that you can negotiate most things, including agent compensation.
If you rely on the listing agent, he or she can only answer certain questions that don’t transgress their duty to the seller. Issues like price, tactics, and timing can be crucial in striking a good deal—but it is precisely on those kinds of issues that a listing agent is likely to be unable to advise you. Especially if you like the agent, you might be tempted to assume silence on a point means endorsement; and that could be a costly misunderstanding. Again, a buyer’s agent in SW Florida knows the SW Florida market from the buyer’s perspective, and can provide a wealth of information that point you in the right direction.
4. Your Personal Traffic Cop
In a typical real estate transaction, you will encounter an array of players, including lawyers, the seller or sellers, the seller’s agent, the financial institution, the home inspection team, and on and on. Buyer’s agents keep things running smoothly. They help organize the process so it makes financial and emotional sense to choose your buyer’s agent carefully.
5. It’s Free!
If ever there were something worth repeating…
5 Very Good Reasons for Using a SW Florida Buyer’s Agent, Naples, Ft. Myers, Bonita Springs, Cape Coral, Golden Gate Estates. The point worth remembering is that buying a house or a condominium is such a major event, securing a professional to watch out for your interests is good common sense. It’s why giving me a call even before beginning any house-hunting venture is a very good idea!
SW Florida Investor Choice: Flipping or Buy-and-Hold? Naples, Ft. Myers, Bonita Springs, Estero, Lehigh Acres, Sanibel Island. When you own the SW Florida home your family lives in, you are by definition a real estate investor: it comes with the turf. Your investment is essentially a passive one. Until the day you decide to sell and move on, any improvement in its value is secondary to how well it serves to shelter your family.
How you think about your investment—and how you proceed to manage it—is altogether different when you buy an SW Florida home purely as a financial venture. For one thing, you face an immediate strategic decision: will you be flipping for a quick short-term profit, or aim for the long-term through a buy-and-hold strategy? You have to weigh some pros and cons in order to make the right decision.
Pro: Capital is Freed
A flipping strategy minimizes the amount of time your investment capital is committed, freeing it for other uses. Should you identify another potentially lucrative investment, you will be able to take advantage of it.
Con: Unexpected Challenges
While flipping for short-term profit has definite ‘hands-on’ appeal, first-time investors can be surprised by unexpected complications. Properties that appear to be undervalued (and ripe for a quick flip!) may require costly fixes. Overspending on renovations quickly eats into profits, but under spending can lead to a lengthier holding time. Experienced SW Florida flipping veterans have learned to successfully gauge a property’s true turnaround value.
Additional Consideration: Taxes
SW Florida flipping has tax implications that impact the bottom line. Profits from a property owned more than a year are generally taxed at the ordinary income tax rate, while a property held for less than a year may be taxed at the capital gains rate. Local and state tariffs need to be considered as well—this is where input from a qualified professional is important.
Pro: Passive Investment
If management is outsourced to a professional property manager, the buy-and-hold strategy will require less personal attention than flipping does. Preparing a property for a flip often involves considerable time commitment and adept contractor schedule-juggling.
Con: Management Costs
The passive investment advantage holds true if outside management is contemplated— with commensurate expense. If you enjoy the challenge of successfully managing a property, this negative doesn’t apply.
Pro: Fewer Properties Need To Be Identified
SW Florida Investor Choice: Flipping or Buy-and-Hold? Naples, Ft. Myers, Bonita Springs, Estero, Lehigh Acres, Sanibel Island. Ultimately, successfully executing a flipping strategy means scrutinizing a huge number of properties over the course of time. In contrast, a buy-and-hold strategy necessitates finding only a few great bargains. Pursued intelligently, both buy-and-hold and quick flip strategies have proved profitable for many investors. Both call for finding solid value in SW Florida properties—which is where giving me a call comes in!
Mortgage Payment Option Saves SW Florida Borrowers Time, Money, Naples, Ft. Myers, Bonita Springs, Marco Island, Lehigh Acres, Estero. It can be a true three-ring circus as you close in on signing day for your new SW Florida home. Sometimes there’s a near-simultaneous sale of the previous house that demands attention. There are the timing issues connected with moving out and then moving in. You may be dealing with furnishing the new house, school schedules, and sometimes work requirements have to be juggled; and everything seems to be happening at the same time.
Amidst all the details you are attending to, there is one that appears so simple that it may not get as much consideration as it deserves. Seeming almost like a non-decision, this one actually has major implications. It’s a true ‘sleeper.’
The subject is your decision on how you want to time the new mortgage payments for your new SW Florida home. It turns out that “once a month” is not necessarily the best answer.
Many lenders offer a variety of mortgage payment options, and they vary in ways that can make a surprisingly great financial difference over the long haul. No matter how busy you get, this is a decision which deserves some serious attention (and probably a hand calculator).
First, there is an English language oddity to straighten out: it’s about the prefix “bi.”
If you think “bi” is a prefix that means ‘two,’ you’re right—but it also has two meanings:
• ‘Bimonthly’ means twice a month (but not once every two months).
• ‘Biweekly’ means every other week.
At first glance, “every other week” and “twice a month” seem to be the same thing; but they’re not. The difference is significant, because there are 52 (not 48) weeks in a year. As everyone comes to realize sooner or later, there are 4.3 weeks in an average month (not four). So the number of mortgage payments you will make could be 12 (if you go with the standard ‘once a month’ mortgage payment), or 24 (a bimonthly mortgage payment), or 26 (the biweekly choice).
Most people who choose either of the ‘bi’ payment choices consider a mortgage payment amount that’s exactly half of the monthly amount. If you choose the bimonthly plan, you might save a bit on interest by paying the first half a little bit early. But most lenders just hold the money and apply both payments at the end of the month—if so, the advantage disappears.
The real significant difference arises if you are offered a biweekly option. You can use any of the online mortgage sites to work out the precise details for yourself. Because you are making two extra payments a year, for instance, what would have been a 3.8% 30-year $225,000 loan for an SW Florida home actually turns into a 26-year loan. All else being equal, you’d own your SW Florida home free and clear four years earlier—and save more than $23,000 in the process!
Mortgage Payment Option Saves SW Florida Borrowers Time, Money, Naples, Ft. Myers, Bonita Springs, Marco Island, Lehigh Acres, Estero. No matter how hectic a house hunting and moving process becomes, it’s part of my job to help my clients keep the important details and decisions front-and-center. Getting the best answer to the mortgage payment choice is one of them; and of course, another best answer is to give me a call!
Preparing for SW Florida Showings Yields Peace of Mind, Naples, Ft. Myers, Bonita Springs, Estero, Marco Island, Lehigh Acres. Getting properties ready for open houses or other showings in SW Florida takes a bit of determination—especially when it comes to paring down all the ‘stuff’ that has accumulated through the years. It’s a push-pull between I still use that every day! and this room still looks too crowded! You may update the paint, add some fresh landscaping, but it’s the emptying-out part that sometimes takes the most resolve.
So, after that’s all done, are you ready for showings?
Showings and open houses are a bit like concerts and plays. They’re presentations which (hopefully) result in an experience that is pleasurable. In order to make that happen, there have to be workers who prepare behind the scenes. When successful, their efforts are invisible—a “hit” show seems to progress by itself, effortlessly. SW Florida showings and open houses have that in common with theatrical productions, and to be successful, one other thing has to be present: the focus should be on the audience, not the cast members or crew. For home showings, that means thinking about what the prospective buyer (the audience) will encounter as he or she walks from room to room.
Allowing yourself to imagine how someone not familiar with your house will experience it is an exercise that yields another useful side effect. It reminds you that showings and open houses are staged to invite strangers onto the property—and that should prompt a few additional precautions.
First, think about children. You can’t keep Lookie-loos from showing up occasionally, but SW Florida prospects who bring their children usually mean business. You should ensure that your home is free of potential child hazards before showings. Just as you would child-proof for family member visits, eliminate unnecessarily long extension cords, tempting (and sharp) fireplace pokers, knickknacks small enough to be choking hazards (should have packed them up, anyway!) and any other dangerous thing that might attract little fingers.
Not only because of children, clear as much of the half-used debris from cabinets and shelves as possible. Make them look like the spacious ones you see on HGTV—your “audience” will be impressed with the abundance of storage. Don’t forget the medicine cabinet. Secure all medications, so you don’t have to worry when you are gone or out of the room. Clean out the “junk drawer” or the place where you keep mail or bills. Everything will look organized and your private information will be secure from over-curious eyes. For these and for jewelry, you may want to get a lock box for added security.
Preparing for SW Florida Showings Yields Peace of Mind, Naples, Ft. Myers, Bonita Springs, Estero, Marco Island, Lehigh Acres. When you do walk-throughs like a first-time visitor, you will find that you’re much more able to relax while your trusted real estate agent is conducting showings. Showings are just part of what will make up an effective marketing effort for your SW Florida home. Give me a call to discuss how we can make all the parts fit together!