Americans' credit scores, the three-digit number that determines whether you'll get a loan and how much you'll pay for it, have taken a beating.
Millions of consumers' scores have dropped, making it more expensive for them to borrow money — or even impossible if the score has sunk low enough.
Falling credit scores are a reflection of the times: plummeting home values, record foreclosures and the overall recession. At the same time, lenders are applying stricter standards to borrowers, including requiring higher credit scores.
Most Americans may not know their actual credit score, but they've seen enough marketing by the credit-score companies, including the Fair Isaac Corp., to know that the number, which can range from 300 to a perfect 850, has become a de facto national ID. Lenders rely on Fair Isaac's FICO score, but so do employers when screening job candidates, insurers when issuing policies for homes and autos, and landlords when renting an apartment.
This is excellent news for those of us who have good credit! You are no longer competing against a guy with a 40K income and a credit score in the 600s to buy a home for 500K! That will push the prices of homes down (as we're already seeing) and make is so qualified people are the ones who are bidding on the homes. This is good news for everyone except for the guy with the 600 FICO who wants to buy a home that 10X his income.
Here (again) are the rules of thumb. Never buy a house that costs more than 3X your income. Make 100K a year? The most house you should even CONSIDER is 300K.
Don't buy a house if you can't get a prime loan! Period. If your credit score is <700, don't even consider it, work to improve your credit for a few years, then buy.
Don't buy a house if you can't put at LEAST 10%(and 20% would be much better) down. Again, it's a financial responsibility thing!
Don't buy a house if you can't be relatively sure you won't be moving for 7-10 years. This is especially important in FL, there's a good chance we will see a 10 year period of flat/falling prices because of the excesses during the boom. You don't want to be upside down on a house, it's a terrible situation (just go ask anyone who bought in the last 5 years!).
Don't buy a house for more than 100X rent! If the house is to rent for 1500/mo and for sale for 300K, just walk away. The normal multiplier is around 100X rent (2K a month rental should sell for about 200,000). Much more than that, and your overpaying.
The starting price for a home is 100 dollars per sq/ft. Don't work from whatever stupid numbers the RE agent or former owner came up with. 100/sq/ft is the place to start. 3000 sq/ft home? Think in your head "Around 300K". If they are asking 500K, just walk away, there's not a chance in he** it will be worth that much 3-4 years from now.
With these very basic rules, you can then go start to look around the wasteland of S. FL RE. Be wary of new developments (many are going to fail, and will become rented to undesirables because the bank is going to own 1/2 the place) and don't even CONSIDER a condo that's not beachfront or downtown. Even a downtown condo, be careful! Condo's are going to (in many areas) fall to 0, you have to be very confident that the building you're looking at isn't one of those buildings. How do you know? Some are obvious; the towers on the edge of Weston (Tao).. Going to 0. Direct oceanfront SoBE... Not going to 0.. The problem is the units in the middle (more desirable than living in a tower in Weston, less desirable than direct oceanfront in Miami). In general, just be very careful! Condos are a NICHE product, they are not something for the "normal" consumer.
And, last but not least, don't trust a single word coming out of any RE agent/MTG brokers mouth. It's not that they are bad people, but they are sales people, and they are desperate to make sales today. Think of them just like car salesmen; do your own research! The house that they are calling "grossly under market value" isn't! If it were, they would have purchased it themselves and would now be selling it directly to you. Be careful!
Millions of consumers' scores have dropped, making it more expensive for them to borrow money — or even impossible if the score has sunk low enough.
Falling credit scores are a reflection of the times: plummeting home values, record foreclosures and the overall recession. At the same time, lenders are applying stricter standards to borrowers, including requiring higher credit scores.
Most Americans may not know their actual credit score, but they've seen enough marketing by the credit-score companies, including the Fair Isaac Corp., to know that the number, which can range from 300 to a perfect 850, has become a de facto national ID. Lenders rely on Fair Isaac's FICO score, but so do employers when screening job candidates, insurers when issuing policies for homes and autos, and landlords when renting an apartment.
This is excellent news for those of us who have good credit! You are no longer competing against a guy with a 40K income and a credit score in the 600s to buy a home for 500K! That will push the prices of homes down (as we're already seeing) and make is so qualified people are the ones who are bidding on the homes. This is good news for everyone except for the guy with the 600 FICO who wants to buy a home that 10X his income.
Here (again) are the rules of thumb. Never buy a house that costs more than 3X your income. Make 100K a year? The most house you should even CONSIDER is 300K.
Don't buy a house if you can't get a prime loan! Period. If your credit score is <700, don't even consider it, work to improve your credit for a few years, then buy.
Don't buy a house if you can't put at LEAST 10%(and 20% would be much better) down. Again, it's a financial responsibility thing!
Don't buy a house if you can't be relatively sure you won't be moving for 7-10 years. This is especially important in FL, there's a good chance we will see a 10 year period of flat/falling prices because of the excesses during the boom. You don't want to be upside down on a house, it's a terrible situation (just go ask anyone who bought in the last 5 years!).
Don't buy a house for more than 100X rent! If the house is to rent for 1500/mo and for sale for 300K, just walk away. The normal multiplier is around 100X rent (2K a month rental should sell for about 200,000). Much more than that, and your overpaying.
The starting price for a home is 100 dollars per sq/ft. Don't work from whatever stupid numbers the RE agent or former owner came up with. 100/sq/ft is the place to start. 3000 sq/ft home? Think in your head "Around 300K". If they are asking 500K, just walk away, there's not a chance in he** it will be worth that much 3-4 years from now.
With these very basic rules, you can then go start to look around the wasteland of S. FL RE. Be wary of new developments (many are going to fail, and will become rented to undesirables because the bank is going to own 1/2 the place) and don't even CONSIDER a condo that's not beachfront or downtown. Even a downtown condo, be careful! Condo's are going to (in many areas) fall to 0, you have to be very confident that the building you're looking at isn't one of those buildings. How do you know? Some are obvious; the towers on the edge of Weston (Tao).. Going to 0. Direct oceanfront SoBE... Not going to 0.. The problem is the units in the middle (more desirable than living in a tower in Weston, less desirable than direct oceanfront in Miami). In general, just be very careful! Condos are a NICHE product, they are not something for the "normal" consumer.
And, last but not least, don't trust a single word coming out of any RE agent/MTG brokers mouth. It's not that they are bad people, but they are sales people, and they are desperate to make sales today. Think of them just like car salesmen; do your own research! The house that they are calling "grossly under market value" isn't! If it were, they would have purchased it themselves and would now be selling it directly to you. Be careful!
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