Here are the factors that affect credit scores in order of importance.  The percentages shown are the extent that these items affect the score–or how much “weight they carry.”

Payment History - 35% of what determines your
score – DON’T BE LATE

1. Public Record and collection items
2. Recency, frequency, and Severity of delinquencies
   (in that order)

Outstanding Debt – 30% of what determines your
score – DON’T MAX OUT

1. Number of balances recently reported
2. Average balance across all trade lines
3. Relationship between total balances and total credit
   limit on revolving trade lines

Credit History - 15% of what determines your
score - DON’T CLOSE CREDIT CARDS

1. Age of oldest trade line
2. Number of new trade lines

Pursuit of new credit – 10% of what determines
your score – ONCE ESTABLISHED, LAY LOW

1. Number of inquiries and new accounts opened in last
   year
2. Amount of time since last inquiry

Types of credit in use - 10% of what determines
your score -  KEEP A GOOD MIX OF CREDIT

1. The number of trade lines reported for each type:

• Bank cards, travel/entertainment cards, dept. store
  cards
• Personal finance company references (“Same as cash”
  NOT good)
• Installment loans

The most shocking thing is that “paying on time” only
accounts for 35 percent of what determines your score.  Even if you
always pay on time, you CAN still have VERY LOW SCORES if you’re maxed
out on everything, for example.

Hardly anyone realizes that 30 percent of what determines
the score is how outstanding debt is managed.  “Maxing out” credit
cards is the biggest “no no.”  Maintain a low ratio (49% max suggested)
of how much you owe in relation to how much your credit limit is.
Request credit line increases or pay down balances to avoid a lower
score due to being over extended.

• NOTE:  Even if you pay off the account on the next
  business cycle, there’s a good chance the high balance will report
  before you do so.  Then the damage is done.

Next, it’s wrong to assume that scores will improve by
closing accounts.  People think that by having too many credit cards
with high limits, their scores will be low due the risk of a “mad
spending spree” that could cause them to get over-extended.

This is a fallacy.

Maintaining stability and control with large credit
limits will help to produce very high scores. Closing
accounts, on the other hand, will reduce the amount of credit available,
which will make the person appear more “maxed out.”  KEEP ACCOUNTS
OPEN!

Finally, credit inquiries and new credit lines can
temporarily lower the score until those accounts are seasoned.  Credit
inquiries can affect credit scores for up to 1 year.  People with very
little credit must pass through this in order to get established.
However, people with established credit should be careful about applying
for and opening up a lot of new credit right before they apply for a
home loan.

• NOTE:  If you need a loan, don’t hesitate to have a lender run a credit report to assess your chances.  The advice they can give you
  to improve your scores will make them go up way more than the few
  points they might lose by having an inquiry.  For example, don’t wait
  until your rental lease is up to get qualified. Get with a lender months before, so that
  if something needs to be fixed, you’ll have time to do
  it.

“Realtors, home builders and consumers hoping not just for an extension of the $8,000 tax credit, but an expansion to all buyers in 2010, shouldn’t hold their breath.

That’s because it’s looking more likely that Congress will only agree to a continuation of the current credit beyond its scheduled November 30 termination date.

But that’s not bad news. Just a few weeks back the key question was: will Congress extend the credit at all? Now that looks like a pretty safe bet.”

Realty Times, Washington Report: Tax Credit by Kenneth R. Harney

This past winter was nothing short of depressing for Realtors and Home-Sellers alike. Foreclosures were higher than ever and the credit market was a disaster. The real estate markets in Las Vegas and Florida took the hardest hit, sale prices sinking by as much as a half.

But as the seasons change and we move quickly into the autumn months, we are starting to see the light at the end of the tunnel, at least in Utah. Utah Realtors, such as myself, are hoping these uphill trends will move us towards a serious stabilization in the market. These graphs pulled from Utah Business magazine are hopeful.

As the frequency in foreclosures and short sales rises, I have been asked numerous questions regarding the tax consequences of these situations. Of course as a Realtor I am not licensed to give tax advice, and thus I will strongly suggest that you always consult with a licensed CPA or attorney when dealing with these matters. In this post I will consolidate the most current information out there involving short sales, foreclosures and the IRS.

First things first, what is the difference between a short sale and foreclosure?

“A short sale is the discount a mortgage holder may allow in order to sell the property, even though doing so will ‘short’ or ‘discount’ the note. This generally results in a benefit to the debtor because the mortgage is reduced.”

“The process, of course, is different in a foreclosure, but the result is essentially the same. The mortgage holder forecloses on the property, takes possession or sells the property on the courthouse steps, and will probably end up losing on the original mortgage. In effect, the borrower usually doesn’t have to pay the full mortgage, and whatever the lender can get for the property reduces the mortgage amount and the lender will often take a loss on the rest.”

Frankly, the IRS doesn’t care if a property is going through a short sale or a foreclosure. What the IRS does care about is if “Forgiveness of Debt” took place and if it should be taxed to the taxpayer.

The lender will not always forgive debt in a foreclosure or short sale, but when the lender does forgive debt, determining what should be taxed is often a complex question.

In almost every circumstance, the IRS boils the transaction down to 4 questions:

1. “Was the property sold for less than the mortgage or mortgages on the property?”

2. “Was the mortgage or mortgages considered recourse or non-recourse debt?”

3. “Is there Forgiveness of Debt Income after the basis on the property and any loss is calculated?”

4. “Was the property in question the primary residence of the taxpayer?”

Foreclosures and short sales will affect an outstanding number of Americans this year. Make sure that you discuss these effects with both your Realtor and your financial adviser to ensure you are making a financially sound decision. As always, if you have any questions I can answer please contact me today!

Source: Tax Consequences of a Short Sale or Foreclosure. Mark J. Kohler, J.D., CPA. 2009.

Whether you’re thinking of buying or selling a home, or you’re simply interested in the world of real estate, it is helpful to keep updated in the latest market “happenings”.

These statistics were pulled straight from the Wasatch Front Regional Multiple Listing Service and they indicate market activity between August 1, 2009 and August 31, 2009.

Utah County

• Number of Homes Sold: 511
  
• Avg. Price of Homes Sold: $205,000
  
• Avg. Price per Square Foot: $84
  
• Avg. Days on Market: 58
  

Lehi

• Number of Homes Sold: 74
  
• Avg. Price of Homes Sold: $224,000
  
• Avg. Price per Square Foot: $84.16
  
• Avg. Days on Market: 59

Provo

• Number of Homes Sold: 78
  
• Avg. Price of Homes Sold: $187,100
  
• Avg. Price per Square Foot: $98.11
  
• Avg. Days on Market: 62

Orem

• Number of Homes Sold: 59
  
• Avg. Price of Homes Sold: $206,000
  
• Avg. Price per Square Foot: $90.19
  
• Avg. Days on Market: 43

Source: http://metis.wfrmls.com/statistics/SalesPerMonth.report

A Michigan family with an apparently spotty payment history is losing its home because it underpaid its mortgage by 7 cents, according to a legal aid group.

Sydney Rooks, a lawyer for Legal Services of Eastern Michigan, tells the Detroit Free Press that Creg and Bonnie Berger of Deckerville inadvertently underpaid their mortgage because a postal clerk issued a money order for $440 rather than $440.07. The Bergers didn’t catch the mistake and they were four weeks late making February’s payment of $690.07.

Though the Bergers, who have four children, caught up by mid-April, Rooks says, Countrywide Financial and its new owner, Bank of America, rejected the couple’s payments.

Bank of America counters that the Bergers have been repeatedly delinquent and rejected a “reasonable offer” last week to get reinstated.

“There is no story of a 7-cent foreclosure,” Bank of America spokesman Rick Simon tells the paper. “The bank has made determined efforts through the years to help this borrower keep her home, including delaying the foreclosure.”

Last week, the bank bought the house at a foreclosure auction and the Bergers have six months to come to terms with the bank or be evicted, the paper says.

Berger, who is struggling with a computer repair business, says the foreclosure and the loss of their 10-month-old daughter in a household accident in April have devastated the family.

“There haven’t been any highs, only lows,” he tells the Free Press. “We lost our daughter, now we’re losing our home. I don’t know how much more our family can take.”

Is it worth $300-$500 to have a professional home inspection prior to making a purchase? For most people the answer is absolutely! The average home buyer does not have the experience or the knowledge to effectively evaluate a home prior to purchase.

Don’t overestimate repairs, especially on older properties, because what seems like an easy fix can turn out to be more complicated and costly once you’ve gotten into it. What you thought you could do yourself winds up something that requires an expert’s knowledge and skill, then you wind up spending in the thousands when you estimated in the hundreds. Don’t underestimate the repairs and don’t overestimate your ability to fix them.

A home inspection report not only gives you information on repairs or damages in the home, it can also be used as a negotiating tool. If the inspection uncovers anything significant the buyer can seek a price reduction or additional concessions from the seller. If you use a home inspection contingency (and you always should) in your purchase contract you will have the option of walking away without a penalty should something significant turn up.

One thing to remember is that a home inspection is only as good as the inspector himself. If you are using a knowledgeable and experienced inspector it almost certainly pays to have it done. If the inspector is not thorough it is probably going to be a waste of money. Seek referrals from experienced investors and real estate agents when choosing an inspector.

The bottom line is that a home inspection will either save you from making a huge mistake or give you peace of mind when making a purchase.

According to a recent 2009 foreclosure market report by RealtyTrac the Provo-Orem metropolitan area, ranks among the top 60 statistical areas with the highest household rate of foreclosure filings nationwide.  Foreclosure rates in the area have doubled from a year ago in the Utah County area.  And the problem isn’t going away anytime soon.  Foreclosures are expected to persist as the recession continues to un-employ more Utah residents. 

According to the report, of the metro areas with populations of at least 200,000 people (203 markets were ranked), Provo-Orem ranked 31st nationally with a rate of one filing for every 45 households. Salt Lake City ranked 58th at one in 74 households; Ogden-Clearfield ranked 59th at one in 74 as well.

The number of foreclosure-related filings in Utah County soared 128 percent to 3,168 in the first half of the year, compared with 1,386 a year ago.  The report includes default notices, notice of trustee sales and bank repossessions.

“While some of the markets that had the highest saturation of foreclosures over the past few years have seen declining rates, new markets like Provo, Utah, and Boise, Idaho, have seen large increases,” James J. Saccacio, chief executive officer of Irvine, Calif.-based RealtyTrac said in the release. “As unemployment rates increase in different parts of the country, it’s very likely that we’ll see similar patterns develop elsewhere.”

Taylor Oldroyd, President of Utah County Realtors stated, “I’m not surprised that foreclosures are creeping up, but our numbers aren’t that high that we should be alarmed.  There are still federal incentives out there and people are moving quickly to grab that federal tax credit of $8,000 before it ends this year.” 

In fact foreclosure rates in Utah are only half of what the top four states reported.  Las Vegas posted the nation’s highest in foreclosure rates, with one in 13 households receiving at least one foreclosure filing in the first half of 2009.  That’s more that six times the national average.

When sitting down with a Realtor, it’s easy to get caught up in the excitement of the pricing of your home.  Asking for more money means more financial opportunities for the seller.  It means more money for that dream home you’ve had your eye on, or it’s being able to start your children’s college fund.  But overpricing your home is the worst mistake a seller can make.  

The honest truth is that it really doesn’t matter how much money you think your home is worth.  What matters, is how much potential buyers are willing to pay for your home.   Pricing homes is part art, part science.   It’s a process that involves comparing similar properties, making adjustments for differences in them, tracking market movements, all in an attempt to come up with a market value.  There is no one home in the Utah County area that is exactly like yours, therefore you need a real estate agent that has experience in comparing homes and is familiar with the market in your neighborhood.  The price suggested on your home is an educated opinion, and not all opinions are the same, however they are generally similar.  When pricing a home there are certain aspects that are taken into account; location of the home, the condition of your home, and the economy and current interest rates.

You don’t want to overprice your home because you will lose the novelty of appeal after the first two to three weeks of showings.    Many sellers want to test the market and start with a price too high.   By doing this you can make your home appear shopworn, which can actually take you longer to sell, and ultimately your home may sell for less than if you had priced it properly to begin with.  The following chart represents the dangers of overpricing.

The benefits of pricing your home properly:

-Faster sale

-More money for you

-More convenient- fewer showings

-Increased excitement and interest in home

-Exposure to the “right” buyers

A buyers’ market exists when listed homes have been on the market for 30-45 days causing an abundance of homes in a specific location.  With the large amount of homes for sale in the Provo area, it’s definitely a buyers market.  Home buyers are in an enviable position to negotiate, however, there are important things that you should know as a buyer to avoid making some classic mistakes.

1- You should request listings and updates from your realtor.  About 80% of buyers today start their search for a home on the Internet, without the help of a realtor.  However, most of the time the information you are getting online can and usually is outdated.  To avoid wasting time, contact a real estate agent that can keep you updated with current new listings and also price reductions.  A realtor can gain you access to the same information that they receive daily.

2-View and tour homes that have price reductions or have been listed longer.  If you are like most home buyers, you want to offer less than what a seller is asking for their home.  It’s highly unlikely that you will get an offer accepted on a home that has just been listed if it lowball.  Sellers who have reduced prices or have been listed for longer are more receptive to lower asking prices and have more of a sense of urgency to sell their home.

3- Do your homework and obtain comparable sales.  It’s important to have comparable sales to the home that you are intending to place an offer on.  Ask your rest estate agent to do a Comparable Sales Analysis, and print out a list of similar homes in the same neighborhood that are active, pending sales, or have sold in the past six months.  The following should be included in a comparable analysis, property address, square footage, lot size, bedrooms & bathrooms, sales price, number of days listed on market, etc.

4- Request Contingencies.  Make sure your contract has contingencies that will protect you in case what you have asked for is not delivered by the seller.   In a buyers’ market, you’re in control.  Write your offer contingent upon the property appraising at the agreed upon price and on the obtaining of your loan. 

These is just a short list of  my recommendations for how to write up successful contracts in a buyers market.  If you are looking to buy a home in the Utah County area, please contact me and I can help you through the process of making sure that you get exactly what you are looking for.