I was thinking about writing a blog explaining about how passionate I am right now about people not "waiting" to buy. I've written it, trashed it and rewritten it again and never found a really good way to explain exactly what I wanted to convey. When conversing with clients directly, I've just been forwarding an email I wrote for a specific client so I realized the best way to say what I wanted to say was just to copy and paste a real world scenario, so here's the email (names have been changed and emails deleted to respect borrower privacy):
So I ran simulations on your credit and here's where we're at, please see attached. There's no way for you to get over 740 this year, it's simply a matter of the fact that your accounts are too young. If you paid all your balances to zero right now, it would actually drop your credit score to 692 on Experian. The highest possible score you could have on Experian at one year is 736, so it wouldn't even get you over 740 even if you waited a full year.
The highest possible score you could have on Transunion right now would be 717 which doesn't kick you into the 720-740 bracket, you'd be stuck in the 700-720 bracket still. At 9 months on Transunion you'd be at 731, at 10 months it kicks over 740, that's the only bureau that it's even possible to hit 740 on and we'd need 2 bureaus over 740 because we have to go off the mid score (whatever it is, not an average), so having one over 740 doesn't help you.
For Equifax, the highest possible score you could get right now would be 717 and at one year you'd still only be at 728.
I know this is confusing because sites like Credit Karma display consumer credit reports. All lenders are required to use the tri-merge mortgage credit report which almost always comes in lower than Credit Karma. If you look at page 3 on your credit report the number one reason your scores aren't higher is "Length of time accounts have been established". You can see it's the number one thing on all the bureaus. Here's an excerpt from my Credit Wise ap, you can see that in order to be considered "Excellent" your oldest credit line has to be 25+ years. You don't even get into the "Good" category until you've held a credit line for 8+ years.
Rates are forecast to be in the mid 5's by the middle of next year and home prices are expected to increase by 5% for this area. We have high demand with so many people relocating here from California and we have a ton of tech money in the area. We're also the "most recession proof" area in the country according to Realtor.com so even if we do see a recession it's unlikely to hit our area like the rest of the country.
If rates are mid 5's by the middle of next year and your credit is sitting at 720 then you're looking at rate of probably 5.625%. If home prices go up 5% by the end of the year, they'd be up 2.5% by June, so I created a 4th scenario for that same house, that includes waiting until June, paying $12,500 more for the home because prices have gone up 2.5% and then using a rate of 5.625%. You can see that by waiting, the same payment for that house at 25% down isn't saving you anything it'scostingyou $228.15 per month, $3,134.15 more at closing and if you look at the payment now at 20% down, the payment mid year at 25% down is actuallymore.
Look at the cash to close on 20% down now....you're payment is actually higher by $68 even with putting down almost $34,000 more in the middle of the year if you wait.
If your credit was over 740 right now, the interest rate would be 4.625% for 15 or 25% down. That equates to $60 less per month as a part of your payment. At mid year, after 6 months that $60 equates to $360. At 6 months with 2.5% equity growth you would have gained $12,500 in value if the forecasts hold true.
The Fed has been crystal clear about what they're planning to do, which is to keep raising that rate to combat inflation. The recent rate lows (we were actually as high at 5.125% in Novemberfor perfect credit) are an anomaly and I think rates start to click back up starting the first week in January. I am locking in every loan I can possibly lock that's under contract and closing within 30 days because I think rates will be a little sleepy that first week and then will really start that upward kick by end of January. Last year we saw rates jump from 4.125% to 4.5% overnight end of January and I think we're likely to see that repeated this year.
If you want to wait, I don't want to push you into buying, it has to be a good time and a good decision for you personally, but I wouldn't wait if the only reason you're waiting is for the credit score to go up.
Let me know what you decide!
Author:Sarah Rowan Phone: 970-397-5774 Dated: January 1st 2019 Views: 2,929 About Sarah: Sarah was a licensed real estate agent for 10 years before transitioning into the mortgage industry ...
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Matt and Sarah have been in the mortgage/real estate industry for a quarter century of combined experience. We are passionate about the industry and are on the cutting edge of development for loan programs and real estate knowledge. We would love the opportunity to earn your business!
Interest rates are at 7 month lows!!!That's a conversation no one
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You were so very patient and answered every question. We appreciate the way you made yourself available to us at every turn! You showed your self helpful above and beyond. We love our new home and are so grateful that you made this experience a wonderful one. We would (and HAVE!) recommended Loan Simple and you, Matt to anyone! Thank you again! "