What You Need to Know About Debt to Income Ratio

What is debt to income ratio? Which is different than what is my monthly budget. All right? Because I really want to just land there just for a second. Because it's super important that when you're going out looking for a home, you've identified what is that monthly number, that monthly payment that fits with the rest of your lifestyle? Because it's really easy to fall in love with a house that's higher than your budget. I mean, the higher you go, the prettier they get. Right? But that might not work with the fact that you want to start a family. You want to buy a car. You want to go on vacations. Maybe you want to build up investments to secure your financial freedom and retirement. All of those things should be talked about, discussed with your lender. Bringing in all the other things about your life to ensure that you pick the house payment that allows you to have a life, not just live in a home. Lisren to this episode to get the full story and why you need to know its affect on your credit score.

5 Important Things You Need To Know About Your Personal Credit Score

Do you know what goes into a credit score? We're going to be going through a five-part series to share with you what you need to know.

What makes a credit score?

Let's start off with the five factors that can ultimately affect your score: payment history amounts owed, length of history, credit mix, and credit inquiries for new credit. The first three go hand in hand. Your payment history will appear in your credit report for all of your open and active trade lines. Payment history demonstrates how you were able to manage your debt over a period of time. Paying your bills on time consistently yields a higher credit score, and in turn, allows you to borrow more money.

Additionally, the longer your history of consistency exists, the higher your score will be. I mean, this is important, because while you're shopping for a home, do not close any accounts as that cuts your history short. Also, keep your balances low, ideally below 30% of the credit limits and make sure above all else, keep making your payments on time. I mean, if you're looking to purchase a home, now is not the time to miss a payment. Even if it's by accident, a missed payment can drop your score by as much as a hundred points.

Credit Type Inquiries

As we're talking about credit, many people don't realize the types of credit you can have affects your score. I mean, did you know that people with student loans can sometimes have the very best credit scores? Creditors are looking for a good mix of revolving credit, installment debt, lines of credit, and mortgage history, but don't worry if you're a first-time homebuyer having several credit cards, a student loan, and even a car loan is a great mix. Just keep those payments low. So your debt to income ratio is strong.

Inquiries also affect your credit report. I mean, think about it this way, a creditor's going to look at your attempts to get additional lines of credit with concern. If you're continually applying for credit cards, cars, or other debt, and don't have new trade lines to show for it, it will count against you. It can also count against you if you've applied for a lot of credit in a short period of time, that's why, although credit inquires fall off over time, they can leave a stain on your credit if too many of them exist.

Credit Utilization

So we're talking about credit score optimization, and I want to ask, have you heard the term credit utilization? It simply means the ratio between your credit line limit and your current loan balance. Keeping your current balances on your open accounts below 30% of the limits is key for keeping a healthy score, and especially allows you to take advantage of some of these new market opportunities, like first-time homebuyer purchase programs, or buying your first investment property, a tip to get your credit utilization down without having to pay any money out of pocket is to request a credit line increase. If you've had a card for over six months with a good payment history, you may be able to get a credit line increase, which improves your overall credit profile.

Opening a new account can also improve your credit utilization. Now, be aware that new accounts are just that, they're new, and any new activity on your credit report, no matter how high the credit limit can be viewed as a negative action and cause your score to temporarily decrease before it goes back up longterm. So don't do this right before applying for a mortgage.

Paying Down Debt

If you're like most Americans, you probably have credit card debt that's keeping your credit score low. If you're looking to purchase a home, coming up with a pay-down strategy is key to your success. I mean, you can focus on the credit utilization method we talked about in our last video, or you can even keep it simpler by focusing on paying off debt with higher interest rates first. Those higher interest rate cards are building up higher balances every single day with the added interest. Then as you pay off each one of those cards, you can use what's called the debt snowball system, where, as you pay off debts, you apply that same amount plus what you were already paying towards that singular debt, as in the minimum payments, towards the next credit card or loan. You keep doing this, paying off each credit card in full, and then applying that entire amount to the next one until finally you get them all paid off.

And while being completely debt-free feels great, it is not our requirement to own a home, nor is it an impediment to homeownership. Often you can begin creating wealth while paying down your debt.

Become an Authorized User to Improve Your Score

As we wrap up our series on credit scoring, I want to talk about one of the quickest ways to increase your credit score. And that's by becoming an authorized user on a family member's credit card, being an authorized user, you will get all of their histories. So make sure that you know that they have an established on-time payment history with the specific credit account that you're going to co-sign on. Credit cards with a longer open history pack a bigger punch because they show responsibility over time. This is particularly helpful if you're a parent, and you're wanting to help set up your child for success. I added all three of my kids to my accounts when they were 16 years old to help them build their credit. Then when they were 18, they were quickly approved for their own credit card. This way by that they were ready to purchase a home at 20, they had a credit score of over 740. I mean, that's a game-changer.

If you've enjoyed this series, I'd love to share more and set up a plan that's just right for you, based on the goals that you have for homeownership.

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You've been listening to the Double Comma Club. Never miss an episode, subscribe at thedoublecommaclub.com, or your favorite podcast venue to hear more success stories, get free tips on how you can get on the path to becoming a millionaire through real estate at any age. If you enjoyed this, you might also enjoy our YouTube channel. Just look for the Rueth Team on YouTube or visit our site, theruethteam.com.

First Time Home Buyer, who do you talk to first, your lender or your realtor?

Purchasing your first home is a major accomplishment .. it’s also stressful, daunting, and overwhelming!  Knowing exactly where to start the journey to homeownership will allow you to optimize the most of your available time, money, and energy.  So first steps first... do you talk to a real estate agent or lender first? 

If you are a first-time homebuyer, you may not even have those names to fill in the blanks.  The best practice is to start with people you trust. Who in your life do you know who is a realtor, a lender, or maybe someone who just purchased a home and had a great experience?  These initial contacts might not be where you land, but picking their brain on why they liked working with their team can give you a good direction to start from. 

As a lender, I want to say everyone should first dial in their credit availability, payment budget, and optimal purchase price before looking at homes.  But sometimes people get excited... I get it. Looking at homes is a lot sexier than talking about financing.  But the last thing you want is to find the perfect home $25,000 outside of your budget.  You will also want to find a realtor who specializes in the type of home or location desired. Let's take Denver Metro for example. You would think anyone can go anywhere, but looking at horse property with a well and septic, versus condos downtown, versus multiunits in the suburbs can take a different skill and a focused search.   Talk to your agent openly about what is important to you to ensure there is a match. 

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Biden Harris Proposed Tax Laws Effect on Consumers from Tracey Wilson

The table below is taken from Tracey Wilson's presentation at the Agent Ignite session. These are derived from his research. If you have questions, please visit his website. This is the BIG RED button he talks about in this presentation.

Here is the PowerPoint from this presentation.

Here are a few points covered:

1)American Rescue Plan: $1.9 trillion for COVID Stimulus Package

• Passed even though $800 billion of the previously passed $2.2 trillion CARES Act (passed 3/20/20) had not been spent yet

2)American Jobs Plan: $2.3 trillion for infrastructure

• Raise the corporate tax rate to 28%
• Increase the global minimum tax paid to 15%
• Impose a corporate minimum tax on book income
• Eliminate tax benefits for the oil and gas fossil fuels sector
• Increase corporate tax enforcement

3)American Family Plan: $1.8 trillion for universal pre-K, free community college, SLD $50K forgiveness, paid family leave

• Raise individual income taxes
• Raise cap gains tax rate
• Increase estate tax
• Limit step-up in basis

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Where did all the under $500K homes go?

The July DMAR Market Trends data was released this week, and there are two notable trends. First, when comparing 2021 to pre-covid 2019, our seasonality is falling back into normal ranges. We have a healthy influx of listings which were up 8 percent, 2 percent more homes went under contract, and there were 7.5 percent more closings when compared to 2019, yet we continue to see three times the price growth. If I return to our current month-over-month or year-over-year and stop there, we are bleeding red.

But the real story is in the green. Green month-over-month active listings are eluding to hope that more balance is on its way, yet green double-digit annual closed prices say that balance may not arrive too quickly. The second trend that stuck out is that year-to-date, homes priced over $500,000 are flying off the shelves compared to 2020 and 2019, with more homes at higher prices coming on the market, going under contract, and closing. Year to date 54 percent of all homes sold in the Denver market were over $500,000. In July, that number spiked to 74 percent. Where did all of the under $500,000 priced homes go?

1031 Reverse Exchanges and What You Need To Know

In this episode, Tracey Wilson of IPX1031.com compares the 1031 Exchange from the previous episode and explains the 1031 Reverse Exchange. In the previous episode Tracey Wilson went into details about the 1031 Exchange laws, how they work, details you need to know, including the six rules.

Here is the nutshell of this 8-minute episode. You'll want to listen or call Tracey to get a more comprehensive explanation:

In a Forward Exchange, you would sell the old property. You have 45 days to identify the new, buy new, then 180 days to complete the purchase of the new property.

In a Reverse Exchange, there are two types:
1. replacement property parked first
2. relinquished property parked first.

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What you need to know about 1031 exchanges

Nicole welcomes Tracey Wilson of Investment Property Exchange Services. You can find him at ipx1031.com. Ipx1031 has provided its clients with superior qualified intermediary services for three decades. And each year they assist thousands of clients and their tax and legal advisors by providing proven exchange solutions that best achieve the client's goals of enhancing their business portfolios and preserving equity. But he'll tell you more about that at the beginning of this episode. This is a two-part episode. There is so much to learn. This first one covers the basics you need to know as an agent and as an investor, about a 1031 exchange to avoid capital gains taxes. He will give you guidance, no matter how creative you think you are, he will have solutions and some recommendations to keep you out of hot water with the IRS. Listen to this episode now.

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Creating Cash Flow in Rental Properties

Real estate investments are my favorite topic to talk about, but also my favorite type of loan to help a client with why because in an area where loan officer gets to be creative, often purchasing investment isn't cut and dry. It requires strategy and planning. If you've ever joined me from my building investment empire class in the second Thursday of each month. 

And you know, I advocate purchasing a home as a primary, living in it for a year and then doing it all over again. Why? Because when you purchase a home as a primary, you can put as little as 3 to 5% down and that frees up cash when you compare it to purchasing it as investment property, which requires 15 to 25% down. 

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15 Year Mortgage Rates are at a Historic Low

Welcome to another episode of the Double Coma Club with your host Nicole Ruth of the Ruth team. The number one lending team in Colorado. 

I want to share with you that we just hit another historic low in interest rates. 

Really, that's what I'm thinking right now as I'm processing what just happened to the 15-year fixed. Now if you remember, we hit the historic lows 17 times last year into this year on the 30-year fixed. Now the 30-year fixed didn't hit and hold time historic low. 

But the 15-year did in fact. It's lower than it was during that entire period of time. It just hit per Freddie Mac, 2.12%. Now Freddie Mac does typically have a point 8% discount on many of its loans as it does a national survey. So 2.12 is the national survey with .8 in discount. So what's point? 

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4 cents is double 2 cents; but we are still way short of a dollar.

Buyers and sellers are exhausted by the extremes. Nationwide, new listings are up a strong 5.5% year over year and an even more impressive 11% from last month.

In the Denver Metro, our new listings were up 6% from last year, and 24% from May. This added 7,826 homes to the Denver market last month, lifting our 2,000 active listings to a less than healthy, but certainly welcome 3,122 at the end of June. That's a 50% lift in one month, although it's still shy of a healthy market.

The average active listings for June is 16,098. Days on market is still 4 for both detached and attached.
Mortgage purchase applications dropped to a 5 month low. Pending home sales slowed down to a 2% gain from last month's 17% month-over-month increase.

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