The most popular real estate investment for individuals is the single-family homes. The following discussion focuses on why so many individuals chose to invest in single-family homes over other forms of real estate.

1.) It is possible to buy a single family home with 10% or less down payment. This means that you can buy a $100,000 house for only $10,000 down. It is entirely feasible for the average person to save $10,000 to buy their first investment property.

2.) People are familiar with houses. Most people are not comfortable with shopping centers or apartment buildings. They don’t know what the rents are, what repair costs are, etc. On the other hand, most people do understand single-family homes.

3.) More flexibility. Let’s assume that for the same amount of money you could either have 5 houses or 1 apartment building. If you needed money, with the apartment you could either have to sell the whole thing, refinance the whole thing, or bring in a partner on the whole thing. With the 5 houses, you could sell one of them, refinance one, or bring in a partner on just one.

4.) Higher equity build up. There is usually more appreciation in single-family homes than in apartments and other types of real estate. Apartment buildings are valued based on the income approach (how much money they bring in). Single-family homes are valued based on comparable sales. This means that your investment houses are valued according to what the other homes in the neighborhood are selling for.

5.) More control. With an apartment building, all of the tenants know each other, and they will know what they pay in rent. That means it is difficult to charge one tenant higher rent than another. Plus, if one tenant plays the stereo too loud or causes other problems, YOU will get the complaints. With houses, they are generally scattered around the area. You can raise the rents individually; offer lower rents to excellent tenants, etc.

6.) Less risk. With single family homes, you don’t have all your eggs in one basket. The homes are usually scattered around the area. With an apartment building, if the area goes bad for some reason (i.e. a factory or freeway goes in across the street) you are sunk.

Your new home purchase will probably be one of the most important decisions of your life. Before you begin it is important to educate yourself on the real estate market in your area and the buying process. An experienced real estate agent who knows the area can help you with both these issues. Other excellent resources are books on home buying and seminars for the homebuyer. You can contact info@boardwalkrpm.com to request a free “Home Buyers Guide” or for information on upcoming seminars.

The ten steps of the buying process discussed in this article are:

1. Your Credit Score and “Loan Pre-Approval”
2. Select the Best Real Estate Agency
3. Search For Properties
4. The Offer, Counter Offers and Acceptance
5. Disclosure, Disclosure, Disclosure
6. The Physical Inspection
7. Opening Escrow
8. Leander Requirements and the Final Walk Through
9. Closing Escrow
10. Final Notes

1. Your Credit Score and “Loan Pre-Approvals”
Your “FICO” score provided by each of the three credit reporting agencies is one of the most important factors that lenders consider when providing a good home loan and determining interest rates. Your bank, or a mortgage broker, can interpret the FICO score for you and advise you on the best course for your situation. It is wise to apply for a “Loan Pre-Approval”. This entails a process of complete verification of your loan application, employment, assets, etc. The loan approval step is critical to knowing the interest rate you can expect based on your credit and exactly how much home you can afford. Furthermore, having a “Loan Pre-Approval” in hand will strengthen your offer on any property

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2. Select the Best Real Estate Agency
It is an advantage to the buyer to have the best professional representation. In most situations the seller of the property pays the real estate commission and the services of a professional real estate agent are free to the buyer. Our Real Estate Agents have assisted hundreds of buyers in finding the home of their dreams. We have one of the most educated and dynamic staffs of any real estate company in the local area. Because we are a smaller office, we are afforded the opportunity of dedicating our full attention to service and commitment to our clients.

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3. Search For Properties
Sometimes you find the home of your dreams immediately and your first offer is accepted. Usually the search takes several weeks and it may not necessarily end with the first home you submit an offer on. For some people the home search process will take months. Be determined to find the perfect home at the best possible price, regardless of whether it takes a day or months.

Our agents use all the latest real estate technology. It is important to your search to be kept abreast of new homes. We monitor the real estate market on a daily basis and notify our buyers of newly listed properties the moment they come to market. We will help you find all the best properties for your consideration.

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4. The Offer, Counter Offers, and Acceptance
You have found the right home and you are ready to make an offer. Things included in your offer should be: offer price, terms, conditions and contingencies that must be met in your purchase. It is best to submit offers on the standard form for a residential purchase agreement. A good faith deposit check is normally submitted with the offer. Your real estate agent can carefully explain the purchase agreement to you and fill it out with your complete understanding. You then initial each page and sign the contract.

Once the offer is presented to the seller they may come back with a counter offer. It “stops” your offer when the seller counters with additional terms or conditions. You can accept the sellers offer or make a counter offer of your own. A real estate transaction often will have one or more counter offers before the buyer and seller come to an agreement on price and terms. Your real estate agent will help you with a counter offer and insure that you meet all deadlines and conditions. You have a sales contract once you have reached a successful negotiation with the seller and an offer or counter offer is accepted by one of the parties.

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5. Disclosure, Disclosure, Disclosure…
The buyer should request the seller and their agent disclose every material fact known that may effect your buying decision on the property. Sellers normally provide such a disclosure to their agent. It is best to request a copy of this disclosure when making the purchase offer or immediately thereafter.

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6. The Physical Inspection
There is normally a general physical inspection of the property sometime before opening escrow. The inspection process is designed to ensure that you are making an educated buying decision. A licensed inspector is hired to do a general inspection of the major systems that relate to the property. Your realtor can recommend an inspector with whom they have had good experience with in the past.

The inspection usually costs between $250 and $600 depending on the home. In some states the buyer pays for the inspection and in other states the seller. If defects are found in the inspection the buyer and seller usually determine reasonable repairs to be done by the seller or an adjustment in purchase price. If an agreement is not made on these issues the contract can be mutually cancelled.

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7. Opening Escrow
Your purchase agreement including any offers and counter offers constitutes your contract and initial instructions to the escrow agent. The escrow agent acts as a third party and insures that all the conditions of the sales contract are met as well as any lenders requirements. They handle all the paperwork and cash. It is important to have a good escrow agent to insure that your transaction closes on time. Your real estate agent can recommend a good escrow agent they have worked with in the past. Escrow normally takes between 30 and 60 days. Now is also a good time to line up your homeowner’s insurance. Recently obtaining homeowners insurance has become more difficult and takes more time than in the past.

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8. Leander Requirements and Final Walk Through
Prior to closing your lender usually requires a termite report, title insurance policies, and an appraisal. The seller usually pays for the termite report. There are normally two title policies, an owner’s title insurance policy paid by the seller and a lenders title insurance policy paid for by the buyer. The buyer’s lender will also require that the property be appraised prior to funding. Usually there is not a problem with the appraisal unless you overpay for the property. You can protect yourself by stipulating in your offer that the property must at least appraise for the purchase price.

A few days before closing you will conduct a final walk through to insure that the property is in the same condition as when the physical inspection was preformed and that any negotiated repairs etc. are completed.

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9. Closing Escrow
Prior to closing the deal, you need to ensure that escrow gets a copy of your new home insurance policy and that any balance of the purchase funds be deposited with escrow. Escrow will also provide you with a “Closing Settlement Statement” which discloses all of your charges (debits) and credits in the transaction. It is imperative that you carefully scrutinize this document to ensure its accuracy. When your loan is fully approved, escrow requests loan documents from your lender and schedules a closing date and time to execute the paperwork.

There is a considerable amount of documents that will require your signature. For this reason, the closing session is characteristically known as a “signing spree”. Almost all the documents are standard forms and not subject to change. One of life’s most exhilarating experiences comes after closing when your agent congratulates you on owning your new home.

Once this session is complete, escrow requests your loan funds from the lender. Normally, the day after the loan funds are received, the deed conveying the title to the Buyer is recorded at the county recorders office.

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10. Final Notes
Plan your move appropriately and make sure to give yourself enough time to adequately pack and unpack. Don’t forget to transfer all utilities into your name including the water if applicable. Remember that utilities and cable TV can require several days’ notice. Be sure to order your new phone service and forward all of your mail at least one week in advance. Get references for yard services, housekeepers, etc. Your agent can assist you in locating the correct utility companies for your new home.

Pre-Qualification and Pre-Approval

Knowing how much you can afford is the first step. Meet with a mortgage broker and find out how much you can afford to pay for a home. You’ll also avoid being disappointed when going after homes that are out of your price range.

The second step is to get a Pre-Approval. In this step the buyer actually applies for a mortgage and receives a commitment in writing from a lender. This is an advantage because when you make an offer on a home the seller knows immediately that you are a serious buyer for that property. Costs for pre-approval are generally nominal and lenders will usually permit you to pay them when you close your loan.

Make two Lists: Needs & Wants

Know what items you must have such as number of bedrooms. Then make a list of things you would like to have (pool, den, etc.) but that aren’t absolutely necessary. Realistically for first-time buyers, you probably won’t get everything on your wish list, but it will keep you on track for what you’re looking for.

Representation by a Professional

Consider hiring your own real estate agent, one who is working for you, the buyer, not the seller. In most situations the seller of the property pays the real estate commission and the services of a professional real estate agent are free to the buyer.

Focus on Searching for your dream home: Some items to keep handy:

• One or more detailed maps with your areas of interest highlighted.
• Files of the properties that your agent has shown to you, along with ads you’ve cut out from the newspaper.
• Instant or video camera to help refresh your memory on individual properties, especially if you’re attending a series of showings.

Take notes on the properties you have visited. Some things to consider:

• Look at a potential property as if you are the seller. Would a prospective buyer find it attractive based on school district, crime rate, etc.

• Proximity to positive items such as shopping, parks, freeway access and negative items such as abandoned properties, high voltage power lines, source of noise.
• Visualize the house empty & with your decor: Are the rooms laid out to fit your needs? Is there enough light?

Don’t make a hurried decision that you may regret later:

• Think with your head not your heart. Does this home really meet your needs?
• Be Thorough: A few extra dollars well spent now may save you big expenses in the long run.

Don’t forget the essentials:

• Include inspection & mortgage contingencies in your written offer.
• Have the property inspected by a professional inspector.
• Request a second walk-through to take place between 3 days to 24 hours of closing. You want to check to see that no changes have been made that weren’t agreed on and that items in the sales contract are completed.

All the above may seem rather overwhelming. That is why selecting the right Real Estate Agency to represent you and keep track of all the details is an important part of the buying process. Our real estate agents have assisted hundreds of buyers in finding the home of their dreams. Contact us to arrange for a meeting with an agent to go over the entire buying process. There is no obligation and we are always happy to answer any questions you may have.

The Jones went to a lot of trouble to insure that their home was in good repair and was fixed up for sale before placing it on the sales market. The property was attractive and priced to sell. In a short time there was a contract for sale.

When the buyer’s inspector came to perform the general inspection he found that the roof was on its last legs and recommending spending $5,000 for a new roof. The Jones were surprised and upset because the roof should have lasted several more years. They called their roofing contractor who after studying the roof recommended a $500 repair and assured the Jones that the roof would last another three to five more years. Eventually a third roofer recommended by the buyer was consulted who agreed with the Jones contractor. The Jones did the $500 repair and the buyer was satisfied with the opinion of the two roofing contractors.

Inspectors are human and can make mistakes. Do not panic if you get a negative inspection report. Get a second expert opinion and work to resolve the problem.

The solution is not always this easy, especially when contractors can’t agree. Keep in mind that there is an element of subjectivity involved in the inspection process. For example, two contractors might disagree on the remedy for a dry-rotted window: one calling for repair and the other for replacement.

The buyer normally choses the inspector and picks up the cost. If you do not agree with the inspectors report, sometimes finding the right expert to give an opinion on a suspected house problem is the answer.

by Attorney Bill Bronchick

How should I buy and sell real estate? What entity gives the best tax benefits? How can I limit my liability? These are common questions posed by both beginning and experienced real estate investors. The following are answers to common questions about maximizing profit and limiting liability in real estate investing.

How should I take title?
The first and biggest mistake you can make as an investor is taking title in your own name. All deeds are public record and free for prying eyes to see. Having property in your own name makes an easy target for tenants, creditors and attorneys. If a liability is created on your property, the owner (you) are liable. Make sure than you have a buffer zone between you and your properties. Keep your ownership private. The simplest, yet most effective device for taking title is the land trust (a.k.a. “Illinois Land Trust”). The land trust is a form of revocable, living trust used to take title to real estate. The trust, rather than you, can assume liability for loans. Using a different trust for each property (e.g., “The 2537 Clarkson Street Trust”) allow you to own, manage and transfer property with anonymity.

Keeping a low profile is very important for investors who don’t want the world to see their business. Land trust agreements are not recorded in any public register so the beneficiaries of the trust are not easily discoverable. The beneficiaries of a land trust can be you, a corporation or some other entity (see below). The trust itself is not considered a separate taxable entity from the beneficiaries (see I.R.C. Sec 671-678). Thus, there are no tax consequences of transferring a property into or out of a land trust.

How can a corporation be used to limit liability and maximize tax advantages?
A corporation is an effective device for buying and selling real estate on a short term basis (also called “flipping”). A land trust is an effective device for taking title, but it will not protect the beneficiaries from personal liability (since the beneficiary of a land trust reserves the right to direct the actions of the trustee, the beneficiaries can be held liable for mishaps on the property). Thus, if you “buy and flip” property, you should have the beneficiary of the trust be a corporation to limit your liability.

A corporation will limit the problem of IRS “dealer” status. A dealer is one who regularly buys and sells real estate as a business. If an individual is tagged as a “dealer,” the profits on his sale of property are subject to self employment tax (approximately 15%). Corporate dividends, on the other hand, are not subject to self employment tax (although the investor may have to take some salary, subject to self employment tax, to satisfy the aggressive IRS auditor).

What’s the difference between a “C” and “S” corporation?
There are essentially two types of corporations for tax purposes, “C” and “S.” A corporation is a “C” corporation by default; the “S” status must be elected. A “C” corporation files its own tax return and pays taxes on its profits. When the corporation distributes profit to its shareholders (called a “dividend”), the shareholders pay additional tax on their personal income tax returns (called “double taxation”). An “S” corporation is not taxed at the corporate level. Like a partnership, it files an informational return and the shareholders report their share of profit or loss on their personal income tax return.

Which is better for real estate?
An “S” corporation is not necessarily better than a “C” corporation, but rather it depends on the investor’s particular tax situation. For example, an investor who has a working spouse may benefit from an “S” corporation, since a loss from the corporation’s operations can be used to offset the working spouse’s income. On the other hand, if an investor has a large profit, she will have income tax on all profits, whether or not they are reinvested or distributed. With a “C” corporation, the individual shareholder is not taxed on profits until they are distributed (the corporation itself pays tax on its income, but the first $50,000 of “C” corporation income is only taxed at the rate of 15%, which is much lower than personal income tax rates).

What is a Limited Liability Company and how is it different from a corporation?
The Limited Liability Company or “LLC” is now recognized in all fifty states. People often confuse an LLC with a corporation, but it is much like more a partnership. It’s owners, called “members,” can equally participate in the management of the company without personal liability.

An LLC, if it has two or more members, is treated as a partnership for federal income tax purposes. Thus, like an “S” corporation, the profits and losses “flow through” to its owners. On rental activities, these profits are not subject to self employment tax (an LLC which engages in “buying and flipping” may not be considered “passive” activity and thus subject the members to self employment tax. Thus, a corporation may be better than an LLC for this purpose).

Most states now recognize “single member” LLCs, that is, an LLC with only one owner. The IRS treats a single member LLC as a “non-entity” for tax purposes. That is, the member would report as though the LLC did not exist. Thus, if the investor was reporting his rental activities on schedule “E” of his federal income tax return, a transfer of property from his own name to a single member LLC would not result in any change of reporting. Furthermore, an LLC between husband and wife can still be treated as a “single member” for federal income tax purposes. Thus, one could form an LLC for each property he owns and still file only one tax return!

What is best entity for doing “sandwich” lease options?
When you lease with option then sublease with option (called a “sandwich”), you are essentially doing a “buy and flip” (i.e., when your subtenant exercise, you simultaneously exercise from the owner then sell to the subtenant). Thus, a corporation may be better than an LLC in this regard, especially if you do a number of deals and risk being classified as a “dealer.”
So which is better for real estate, a land trust, a corporation, or an LLC?

The land trust is simply a title holding device, not an entity apart from its owner. Thus, regardless of who is the beneficiary, the property should always be bough and sold in a land trust. The beneficiary should be a corporation for short term deals and an LLC for long term rentals.

When do I create the land trust?
Logistically, I prefer to use my corporation to sign the contract as a buyer. If the contract goes bad, I’d rather the seller sue my corporation than me personally. When it is time to close, I simply create the land trust then assign the contract from my corporation to the trust.

Should I use one land trust for each property?
Yes, it is best to have a different trust for each property.

Copyright ©1998 · Bronchick Consulting Group, P.C.

About the author…

William Bronchick, J.D. is an author and attorney who regularly presents workshops and do-it-yourself seminars at real estate and landlord associations around the country. He is the president and co-founder of the Colorado Association of Real Estate Investors. Bill specializes in all forms of asset protection and is the author of several great home study courses:

Using rental property as an investment is like any other business; to improve cash flow, you must either reduce expenses or increase income. Increasing income is usually easier to achieve, but unless the residents are on a month-to-month lease, the only times you can increase the rent is when the lease expires, assuming the rental market will allow an increase.

Rent increases in the 4-6% range are usually common, but it is not abnormal to see hikes as small as 2% or as high as 10%. It usually best to increase the rent even if only a minimum amount each time the lease renews. This way the resident is used to expecting an increase. Also the owner avoids having to tack on a large increase when the resident has been in the property for several years at below market rent. A large increase is more likely to cause a resident to move then several smaller increases. It is also recommended to increase the rent when a resident request that they lease the property on a month-to-month basis. A Month-to-Month lease normally an advantage to the renter and a disadvantage to the landlord and residents normally expect to pay a little more.

When considering the amount to increase, figure what your market rent would be. The increase should not be substantially higher than what a comparable house would be renting for. A comparable property would be a house that closely resembles your house in size, age, location, and amenities.

Despite your best efforts, some renters will choose to move away anyway regardless of an increase.

Our Resident Placement Services are designed to quickly locate the quality resident and start the rental process out on the right track.

Our marketing program is the best in the metro area. We have an impressive track record in placing quality residents. Most important is our reputation and professional staff. We have been known for renting quality homes and professional management practices. Promotion efforts include media advertising, rental brochures, hot lines, signs, flyers and our web site. Available homes are showcased weekly to over 150 relocation, placement and realtor offices. Our rental brochures are sent to individuals on relocation lists. We receive many inquiries by e-mail and have custom software that matches residents with available homes. Our office is open Monday through Friday 9:00 am to 5:00 pm. and by appointment evenings, Saturdays and Sundays.

Overview of our marketing resources

After a potential resident is located we conduct an extensive screening process. This process includes credit reports, reference checks and personal interviews. Once an applicant successfully completes the screening process we negotiate the lease terms.

We execute the lease documents, collects the security deposit and the first month’s rent. Our clients gain the advantage of our Texas Association of Realtors contracts. Our leases and supporting documentation are some of the best in the industry. All contracts are comprehensive, clearly written and proven in court. Our professional staff is expert at explaining lease agreements and assisting new residents in understanding their responsibilities under the contract. Beginning with a clear understanding of each party’s responsibilities is essential to building and maintaining an excellent rental experience.

Fees for Resident Placement Services. Our Resident Placement fees are very competitive and are normally based on a percentage of the first month’s rent plus advertising cost. Some minimums may apply. We would be pleased to meet with you to provide a quote for our services. All fees are subject to applicable gross receipts tax.

Historically, renting your home has been considered a relatively simple and low risk undertaking. However, in recent years, this apparently simple task has become progressively more complex and the risks associated with becoming a landlord far greater. While managing your rental is certainly within the abilities of most property owners, the time and effort involved in management may be greater than the cost of hiring a professional property manager.

The professional property manager is conversant with the applicable statutes and regulations relevant to the management of rental property. In addition, the manager will typically perform the following tasks as part of the management service:

· Advertisement of the rental property
· Screening of potential residents
· Preparation and execution of rental agreements
· Collection of rents
· Disbursal of funds to the property owner
· Monthly and year-end accounting
· Coordination of maintenance and repair work
· Periodic property surveys
· Disbursal of deposits in accordance with state law
· Eviction of residents for breach of the rental agreement

Advertisement of the Rental Property

Until recent years, advertisement of an available rental meant placing a “For Rent” sign in the front yard and possibly placing an ad in the local newspaper. Times have changed. Today, while the old stand-by’s are still used, effective advertising also includes extensive use of the internet, making availability of the property known to real estate professionals, and targeted advertising to large employers.

Screening Potential Residents

Once an application for rental is received, it must be determined if the applicant is qualified to rent the property. Has the applicant been evicted from a prior rental? Does the applicant earn sufficient income to pay the rent? These questions, as well as others should be answered prior to approving the applicant.

A professional property manager will typically check four areas when screening an applicant. These are the applicant’s credit report, income, employment, and rental history. It has become almost universal that the applicant’s credit report be checked for late pays, judgments, liens, or bankruptcies. The applicant’s employer is typically contacted to verify income, and the applicant’s prior landlord is contacted to verify rental history. While there are few perfect applicants, the information gleaned through the application review process can greatly reduce the likelihood of renting to an unqualified resident.

Preparation and Execution of Rental Documents

After the applicant is qualified, the necessary rental documents must be prepared and executed. Gone are the days of going to the local stationery store and buying a preprinted, two-page rental agreement. Today, rental agreements are custom drafted to reflect specific state statutes, and sometimes, applicable local ordinances. In addition to the rental agreement, any required addendums are prepared and may include an addendum relating to pets, a no smoking addendum, an addendum relating to pool use, and if the property was built prior to 1978, a lead paint addendum. Further, a move-in property condition report is completed and documented for review by the resident at execution of the rental agreement. Ancillary forms relating to transfer of utilities and trash pick-up may also be needed depending on the location of the rental property.

Collection of Rent

Every property owner would agree that timely payment of rent is critical. If the applicant was properly screened prior to acceptance, most poor rental risks will be eliminated. However, circumstance beyond the possibility of screening can adversely affect the resident’s ability to timely pay rent. These circumstances include loss of employment, injury, illness, and changes in marital status. When the resident is unable or unwilling to pay rent, the property manager has the ability to effective move forward with the collection process, or if that fails, terminate the rental agreement and locate a new resident in the minimum amount of time.

Disbursal of Rent to the Property Owner

Typically, the property manager will receive rent on the first day of the month, with disbursal of funds to the property owner between the seventh and eighth of the month. Because the property manager is required to hold all funds in trust, funds must be held until checks clear, which may take as many as ten working days. In addition, time is required for the accounting and statement preparation process.

Monthly and Year-End Accounting

The property manager will provide you with a monthly statement showing all income and expenses associated with your rental property. In addition, you will receive a year-end statement showing all income, and expenses broken out by category.

Coordination of Maintenance and Repairs

If you have ever had a resident at your rental property call you at 2:00 a.m. to tell you that the water heater is leaking and your rental is three inches deep in water, you will appreciate having a professional property manager. Most property managers maintain a twenty-four hour system for receiving emergency repair calls and relationships with a variety of skilled tradesmen capable of handling any emergency. For non-emergency repairs or preventive maintenance, you are contacted in advance to discuss the work and its potential cost to your.

Periodic Property Inspections

Does the resident have an unauthorized pet? How about six roommates not listed on the rental agreement? These, and other similar problems, can only be found through a physical inspection of the property. Typically, your property manager should have a representative inspect the property one to two times during the term of the rental agreement. Inspections may be conducted either as a scheduled appointment with the resident, or while repairs or scheduled maintenance is performed.

Disbursal of Security Deposits

After the resident moves out of the property, the condition of the property must be assessed and any damages charged to the resident’s security deposit. However, the property owner is not permitted to charge for “normal wear and tear.” What can be charged for that red wine stain on the white carpet? How much for the numerous nail holes in the living room wall? These, and similar questions are addressed by the professional property manager every day.

Further, did you know that if the resident is not provided an itemized statement of deductions from the deposit within thirty days of termination of the rental agreement, the property owner is precluded from making any deduction for damage to the property and may owe the tenant 3 times the amount of the deposit?

Eviction For Breach of the Rental Agreement

Probably the most difficult part of owning rental property is evicting the resident who has failed to meet their obligations as stated in the rental agreement. Typically, this means that the resident has failed to timely pay rent. The professional property manager can handle the eviction process efficiently, while making the process far less difficult for the property owner.

Conclusion

The professional property manager provides a cost-effective service in the rental and management of investment property. While the above discusses the functions performed by the property manager, it should also be noted that efficiently and competently performing these functions minimizes potential risk to the property owner and in the long term, maximizes returns from the investment property.

It is important to know your credit status when considering the purchase of a house. Most lenders use a credit score called “FICO” to determine your eligibility for a loan and the interest rate you should be charged. FICO stands for Fair Isaac & Company, and credit scores are reported by each of the three major credit bureaus: TRW (Experian), Equifax, and Trans-Union. The score is computed differently by each bureau since they place a slightly different emphasis on component items. Scores range from 365 to 840.

Lenders started to take a closer look at FICO scores in the early 1990s and this is what they found out. The chart below shows the likelihood of a ninety-day delinquency for a specific FICO score.

What affects FICO scores? — How do lenders look at them? — Some of the things that affect your FICO scores are:

• Delinquencies
• Too many accounts opened within the last twelve months
• Short credit history
• Balances on revolving credit are near the maximum limits
• Public records, such as tax liens, judgments, or bankruptcies
• No recent credit card balances
• Too many recent credit inquiries
• Too few revolving accounts
• Too many revolving accounts

The credit score is actually calculated using a “scorecard” where you receive points for certain things. Creditors and lenders who view your credit report do not get to see the scorecard, so they do not know exactly how your score was calculated. They just see the final scores.

Basic guidelines on how to view the FICO scores vary a little from lender to lender. Usually, a score above 680 will require a very basic review of the entire loan package. Scores between 640 and 680 require more thorough underwriting. Once a score gets below 640, an underwriter will look at a loan application with a more cautious approach. Many lenders will not even consider a loan with a FICO score below 600, some as high as 620.

FICO scores and interest rates

Credit scores can affect more than whether your loan gets approved or not. They can also affect how much you pay for your loan, too. Some lenders establish a “base price” and will reduce the points on a loan if the credit score is above a certain level. For example, one major national lender reduces the cost of a loan by a quarter point if the FICO score is greater than 725. If it is between 700 and 724, they will reduce the cost by one-eighth of a point. A point is equal to one percent of the loan amount. There are other lenders who do it in reverse. They establish their base price, but instead of reducing the cost for good FICO scores, they “add on” costs for lower FICO scores. The results from either method would work out to be approximately the same interest rate. It is just that the second way “looks” better when you are quoting interest rates on a rate sheet or in an advertisement.

Factors other than FICO scores affect underwriting decisions. Some examples of compensating factors that will make an underwriter more lenient toward lower FICO scores can be a larger down payment, low debt-to-income ratios, an excellent history of saving money, and others. There also may be a reasonable explanation for items on the credit history that negatively impact your credit score.

They don’t always make sense. Even so, sometimes credit scores do not seem to make any sense at all. One borrower with a completely flawless credit history had a FICO score below 600. One borrower with a foreclosure on her credit report had a FICO above 780.

Portfolio & sub-prime lenders

Finally, there are a few “portfolio” lenders who do not even look at credit scoring, at least on their portfolio loans. A portfolio lender is usually a savings and loan institution who originates some adjustable rate mortgages that they intend to keep in their own portfolio instead of selling them in the secondary mortgage market. They may look at home loans differently. Some concentrate on the value of the home. Some may concentrate more on the savings history of the borrower. There are also “sub-prime” lenders, or “B & C paper” lenders, who will provide a home loan, but at a higher interest rate and cost.

Numerous credit reports can effect your FICO score. Wait until you have a reasonable expectation that you will use a lender before you let them run your credit report. Not only will you have to explain any credit inquiries in the last ninety days, but also numerous inquiries will lower your FICO score by a small amount. This may not matter if your FICO is 780, but it would matter to you if it is 642. Don’t buy a car just before looking for a home!

When people begin to think about the possibility of buying a home, they often think about buying other big-ticket items, such as cars. Quite often when someone asks a lender to pre-qualify them for a home loan there is a brand new car payment on the credit report. Often, they would have qualified in their anticipated price range except that the new car payment has raised their debt-to-income ratio, lowering their maximum purchase price.

In conclusion

Your credit history is important and credit scores are important if you want to get the best interest rate available. Protect your FICO score.

• Do not open new revolving accounts needlessly.
• Do not fill out credit applications needlessly.
• Do not keep your credit cards nearly maxed out.
• Make sure you do use your credit occasionally.
• Always make sure every creditor has their payment in their office no later than 29 days past due.
• Never, ever be more than thirty days late on your mortgage–ever.

Choosing the right landlord is as important as choosing the right home.

One of the most important factors to consider when selecting a home to lease is the ability of your landlord to provide you with prompt, professional residential services. Check out our services and credentials.

Benefits of Leasing from Us

We work hard to be the premier landlord in San Antonio. It is our job to provide our residents with a quality rental experience.

• Our staff is highly trained in residential services. One of our licensed property managers is on call 24 hours a day, 7 days a week for emergencies. Our six property managers are all licensed real estate agents. We have a staff of ten people to insure prompt, quality service.
• All of our properties are well maintained and clean when you move in. We change all entry locks and perform a safety check before you move in. After you move in we keep the property maintained.
• The office is staffed 9 am – 5 pm Monday through Saturday or by appointment. We maintain a 24-hour emergency line. We have a 24 hours rental information line.
• We employ our own maintenance personnel and sub-contractors to insure prompt quality maintenance services. Our maintenance people know your rights under tenant law.
• There is a 24-hour rent drop. We also offer automatic debit service for rent payments.
• All deposits are kept in a separate FDIC insured bank account for refunding back to you at the satisfaction and completion of your lease.
• We provide detailed move-in condition forms for proper documentation of the condition of your rental on move-in.
• We know your rights as a resident under the law. We will respect your privacy. All maintenance etc. is by appointment only.

What our residents say about us…

“In my job I have to move a lot. I used to leased homes from individual landlords. Most homes were not well maintained and there was a real lack of services. I tell everyone in my company to pick the landlord before they pick the home. ” — A. D.

“Leasing has been hassle free. When there is a problem they fix it quickly. They even have a 24-hour maintenance service! The staff is great. That’s the main reason I renewed my lease.” — C. S.

“Everyone treats me with the utmost courtesy: the office staff, the property managers and the maintenance people. They always respect my privacy and conduct business in a friendly professional manner. I appreciate that.” — G. M.