How Your Credit Score Impacts Loan Approval

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Credit scores and loans

Leverage/loans are the key to building a successful real estate business.  Credit scores are becoming more and more of a factor on who is approved for loans and or denied.

All serious investors must understand how to win at the lending game. A large part of that is understanding and managing your credit score.

Better scores equal better loans.  Better loans help create wealth and income faster.

 

How Your Credit Score Impacts Loan Approval

Lenders use your credit score when deciding if and how they offer you credit, such as mortgage, car loan or a credit card. Your score also affects terms and rates associated with these loans.

Your payment history is the cornerstone of your credit score, but other elements also play a part. These could include:

Your credit score is a number.

Lenders use your credit score to assess your risk as a borrower, using data reported to credit bureaus such as Equifax(r), Experian(r), and TransUnion(r).

Your credit score can have an immense impact on your life. It can determine whether a lender approves of an application for a mortgage.

Your credit score takes into account how you’ve paid past bills and the debt that’s currently outstanding, along with your mix of accounts (credit cards, retail accounts, installment loans (car or student loans) and finance company accounts). Lenders also look at how long it has been used; generally speaking it should remain under 30%.

Your credit score is a factor.

Many individuals don’t realize how important their credit score is in loan approval decisions. Lenders use it to assess whether someone should qualify for mortgage, business loans as well as determine interest rates that borrowers will pay on these loans.

One of the key factors affecting one’s credit score includes length of history, debt-to-credit ratio, payment history and types of accounts held. An equally significant element is how long since any negative event such as missed payments or bankruptcy occurred. Either can have an enormously detrimental effect on one’s score.

Lenders prefer to see a mix of retail, finance company and installment loans in your credit profile. Too many new accounts may raise red flags.

Your credit score is a red flag.

Lenders use credit scores to gauge whether or not someone will repay what they borrow. A higher score demonstrates responsible financial behavior.  Higher scores will help qualify an applicant for better terms on loans.

Your credit score is determined by many factors, including payment history, amounts owed, length of credit history, new accounts opened and mix. One keyway you can improve your score is paying debts on time: this component accounts for 35% of FICO scores and 30% of VantageScores.

Excessive new account activity can also lower a credit score. This factor is measured by the total number of hard inquiries on your report; these could include applications for new credit as well as inquiries made by lenders to pre-qualify you for loans or credit cards.

Your credit score is a good thing.

Your credit score demonstrates your reliability as a borrower and determines the likelihood that a lender will approve of you for a loan. Furthermore, it affects interest rates you will pay, potentially saving thousands over the course of your loan’s lifespan.

FICO or VantageScore scores are calculated based on information found in your credit reports. This information comes from the three major bureaus, which contain payment history, utilization rates and age information of accounts.

Setting and making regular on-time payments are two effective strategies for increasing your scores, along with keeping revolving balances to an absolute minimum. Lenders tend to prefer when their borrowers use no more than 30 percent of available revolving credit available.  Having multiple types of loans like mortgages, auto loans, and credit cards may also boost your score. Keep in mind that your score may change with new information appearing in your report over time.

 

Need a loan to increase your score in less than 30 days?  Credit score usage loan.

How Your Credit Score Impacts Loan Approval. Credit usage loan.

Credit scores and loans

 

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How to Create Generational Wealth from High Interest Rates

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Fun fact: What the Fed is doing now will create more opportunities for generational wealth and income in the very near future.

Interest rates are currently high. This can create a discouraging market for new investors, but it’s important to look at the patterns of those interest rates so we can project where they’ll be over the next few years.

Real estate investing is one of the most accessible ways to create generational wealth. It takes two things to be successful:

  1. Leverage: knowing how to use other people’s money (bank loans, etc.) to turn a profit
  2. Math: know how the numbers work so you can use them to your advantage.

Even though interest rates are currently high, if we understand how to use leverage and math to our benefit, we’ll be creating wealth in no time.

It Comes Down to Numbers (and Interest Rates)

We’re all in real estate investing to create income, wealth, a better life. Interest rates are a significant aspect of that. We need to understand exactly how to leverage high interest rates to help you create the wealth you’re here for.

Here’s the good news: interest rates will likely go down soon.

If you buy a property when rates are high, you can refinance when rates drop to increase both your income and equity. 

For Example…

Let’s say you have a 4-plex that you’re going to purchase with the following figures:

  • 4-Plex (Initial Numbers)
    • Loan Amount: $500,000 
    • Interest Rate: 8.5% 
    • Monthly Payments: $3,800

As we said earlier, rates are likely to decrease soon. We’re heading into a big election year which tends to drop rates, and the Fed is hitting their apex. So what happens when the rates decrease and we look at refinancing?

  • 4-Plex (Refinanced!)
    • Loan Amount: $500,000 
    • Interest Rate: 7.5%
    • Monthly Payments: $3,496 (+ $360 income/month)

Even if interest rates only drop by 1%, you still end up with over $4,000/year more in your pocket.

Similarly, because of the  shifting value, that initial $500,000 now has a value of $550,000 (10% higher than before).

If all you do is refinance when rates drop by 1%, you can easily build income and equity. Imagine the strides you can take when interest rates drop even further.

This same strategy applies to portfolio/multi-family homes. When rates drop, you can look into refinancing any investment property to explore these possibilities and take advantage of this opportunity to build generational wealth.

Falling Interest Rates Generate Generational Wealth… If You’re Prepared.

If you buy when interest rates are high, you’re going to increase your income as rates fall. You’re also going to increase your net worth even if you don’t sell them. It’s a great way to create the income you need to begin a sustainable investment cycle. 

Also, this strategy also naturally lets you diversify lines of credit, cross liens, etc. that allow you to increase your portfolio.

Time to Buy

Here’s the bottom line: rates are going to fall, and if you buy now, you’ll build income without needing to invest in additional investments. 

This is the time to be buying investment properties.

We’re moving into a market where there’s going to be a lot of demand for properties. As rates fall, more people will be looking to buy. Get ahead of that rush, and use the dropping rates to put money in your pocket.

Resources

It’s important to keep your finger on the pulse as a real estate investor — especially if you’re serious about generating wealth. We have a weekly Investor Mortgage Report that keeps you updated on DSCRs, bank rates, private money, and market trends so you can be an informed investor.

Things change rapidly. Rates may rise through the end of 2023, but the moment they start to fall, you want to be prepared.

If you’d like to be put on the Investor Report email list, or if you have questions about how to get started as an investor, reach out to us at Mike@TheCashFlowCompany.com.

You can also check out our YouTube channel for more investment tips and tricks.

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Real Estate Predictions: Looking Back to Look Forward

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What have we seen in 2023 and how does it inform our real estate predictions for 2024?

When you’ve been in the real estate investing industry for as long as we have, you start noticing trends. 

2023 has been an interesting year for investors as we’ve faced exceptionally high interest rates. At times, this has been stressful, but how can we use this information to help us prepare for the next year of opportunities?

What Have We Seen in 2023?

High interest rates! 

Currently, rates are between 7% to a little over 7% for people looking to buy an owner-occupied property with a 30-year fixed mortgage.

According to Realtor.com, we’re also facing a shortage of homes for sale. Although there is high interest in buying single-family homes, there’s a shortage in the market. 

Affordability has also been a challenge for buyers and investors alike. All buyers need to afford and qualify for the mortgage in order to move forward.

All in all, it’s been a tough market for real estate. Smart investing has been more necessary than ever before.

Predicting 2024: A Shifting Market

Demand

Moving into 2024, we’re going to see even more repercussions from the pent up demand from 2023. People want to buy homes, and the market is going to get competitive. 

Affordability Concerns

So many young adults are living with friends or family out of necessity. Multi-family households are increasingly common in response to affordability concerns.

As these adults get older, the desire to live in their own space will only get stronger.

Election Year Impact

Even though the Fed isn’t tied to either Democrats or Republicans, there’s always pressure on them to make sure the American people feel good about the housing market. 

Pay attention to how interest rates respond to election pressures.

Dropping Rates

The Fed has nearly reached their max which means lower rates are coming! And not just on housing; credit cards, student loans, etc. will all start seeing lower interest rates. 

Although it’s tricky to pinpoint exactly how low the rates will drop, our real estate market predictions are confident that lower rates are coming.

 

Read the full article here.

Watch the full video here:

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How Your Revolving Debt Utilization Rate Affects Your Credit Score

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Utilization Rate Affects Your Credit Score

When you apply for a loan, the lender will look at your credit report to assess your creditworthiness. One key metric lenders use is your revolving debt utilization rate, or the percentage of your available credit you’re using. A high revolving utilization ratio can make it harder to get approved for loans. Knowing how your revolving utilization rate impacts your credit score and taking preventative steps to keep it low can help you improve your chances of getting the loan approval you want.

What is a revolving debt utilization rate?

A revolving debt utilization rate is the amount of debt you currently owe on revolving credit accounts (such as credit cards) divided by your total credit limit on those accounts. It’s calculated by adding up the outstanding balances of your revolving credit, like credit cards and home equity lines of credit, and then subtracting the respective credit limits from those totals to find the debt-to-credit ratio. You can calculate this ratio by tallying up the outstanding balances on all your revolving credit and then dividing the result by the respective credit limit to find your utilization percentage.

Your credit utilization rate is used to predict your credit risk and has a significant impact on your FICO credit scores, making it the second-most important factor behind only your payment history in the scoring model. The higher your revolving utilization, the more likely you are to have difficulty repaying what you borrow. For example, if you have a credit card with a balance of $2,000 and a credit limit of $10,000, your utilization rate is 20%.

However, it’s important to remember that revolving debt utilization rates only include revolving credit accounts such as credit cards and home equity lines of credit; they don’t consider other types of debt, like installment loans, which have a set repayment schedule. For this reason, credit card balances tend to have a greater impact on your credit scores than mortgage and auto loans, which are reported as installment debt.

What is a good revolving debt utilization rate?

Lenders typically prefer to see that borrowers aren’t using more than 30% of their revolving credit limit. Carrying too much debt could indicate you’re having trouble repaying what you’ve borrowed or may be struggling financially.

In addition, many lenders have their own guidelines for what is considered a “good” revolving debt utilization rate. Some lenders will decline applications for credit or will only approve applicants with revolving debt utilization rates below certain thresholds.

Keeping your revolving credit utilization low is a great way to improve your credit score, and it can also save you money on interest payments. To lower your utilization rate, make sure you pay off your credit card balances each month, and try to keep your balances as low as possible. If you have trouble paying off your balances each month, call your credit card company to see if they can give you more time to pay your bill or set up automatic payments.

 

Find out how a loan can raise your score in 30 days or less

 

Utilization Rate Affects Your Credit Score.

#credit score loan

 

 

 

 

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How Do Usage Loans Boost Credit?

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If you’ve ever wondered how to boost your credit score overnight with usage loans, you’ve come to the right place.

Having a strong credit score is like having a really good baseball team. It doesn’t guarantee an instant win, but it sure helps! The better your team (and credit score), the more home runs you can look forward to in your investment season. 

When you win the credit score game, you win countless opportunities. These include good rates, good loans, and more opportunities that can, in the end, add up to hundreds of thousands of dollars.

What is a Good Credit Score and Why is it Important?

Typically, banks consider a credit score “good” when it’s 700 or higher. 

The higher your score, the better your chances of taking home a big trophy. 

It’s important to note that not every lender is equally concerned with credit score. Some private money lenders care more about the specific deal or their relationship with the investor. This can be really helpful to keep in mind if you need to apply for a usage loan or some other method of raising your credit score.

How Can a 60-90 Day Note or Usage Loans Help?

If those first two strategies don’t really work for you, then you can always take a third approach: find a loan.

You can apply for a short-term 60 or 90 day note. These are available from most banks, or you could look to family and friends for the small loan. You can also go through private lenders like us for a usage loan. 

A usage loan allows you to move the credit card balance off of that card (and away from your credit score). It can fix usage issues instantly as might be obvious by the loan’s name.

Also, by moving that balance to a different place, you’ll often find better deals which can allow you to pay off the usage loan more easily than you could have paid off the credit card.

We Can Help!

If you take one, two, or all three approaches to boosting your credit score, then you should see better deals flying your way almost immediately.

If you want to discuss options such as usage loans or even business credit cards, reach out to us at Info@TheCashFlowCompany.com. 

Our team is always ready to help.

We’re eager to set you on a path that helps you make the kind of money you need to live the life you want.

 

Read the full article here.

Watch the full video here:

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2024 Real Estate Market Predictions

Categories:

What have we seen in 2023 and how does it inform our real estate market predictions for 2024?

When you’ve been in the real estate investing industry for as long as we have, you start noticing trends. 

2023 has been an interesting year for investors as we’ve faced exceptionally high interest rates. At times, this has been stressful, but how can we use this information to help us prepare for the next year of opportunities?

What Have We Seen in 2023?

High interest rates! 

Currently, rates are between 7% to a little over 7% for people looking to buy an owner-occupied property with a 30-year fixed mortgage.

According to Realtor.com, we’re also facing a shortage of homes for sale. Although there is high interest in buying single-family homes, there’s a shortage in the market. 

Affordability has also been a challenge for buyers and investors alike. All buyers need to afford and qualify for the mortgage in order to move forward.

All in all, it’s been a tough market for real estate. Smart investing has been more necessary than ever before.

2024: A Shifting Market

Demand

Moving into 2024, we’re going to see even more repercussions from the pent up demand from 2023. People want to buy homes, and the market is going to get competitive. 

Affordability Concerns

So many young adults are living with friends or family out of necessity. Multi-family households are increasingly common in response to affordability concerns.

As these adults get older, the desire to live in their own space will only get stronger.

Election Year Impact

Even though the Fed isn’t tied to either Democrats or Republicans, there’s always pressure on them to make sure the American people feel good about the housing market. 

Pay attention to how interest rates respond to election pressures.

Dropping Rates

The Fed has nearly reached their max which means lower rates are coming! And not just on housing; credit cards, student loans, etc. will all start seeing lower interest rates. 

Although it’s tricky to pinpoint exactly how low the rates will drop, our real estate market predictions are confident that lower rates are coming.

The Economics Behind the 2024 Market

As interest rates go down, you’ll have the opportunity to increase your cash flow just by refinancing or being smart with your purchases. 

The lower the interest rate, the more money goes into your own pocket in each deal.

But how does the math work?

If you’re looking at your finances, and you think you can afford approximately $2,000 for a monthly mortgage payment, here’s the breakdown:

  • In total, you can afford $2,000 a month in payments 
  • Subtract $100 for taxes
  • Subtract $100 for insurance
  • TOTAL: Investor can afford about $1,800/month that goes towards the mortgage

Now, let’s run that through different interest rates. 

Even though you can afford only $1,800/month towards a mortgage, the interest rate significantly changes the loan amount which in turn changes the types of property you can pursue:

Even a change from a 7% to a 6% interest rate results in an 11% increase in the price of a home you can afford. 

As interest rates go down, more people can access what’s on the market. 

If you’re in real estate investing, having homes ready to flip in 2024 to meet that pent up demand as interest rates drop can make a huge difference for you.

Make a Game Plan

Even though rates are still high, based on these evidence-based real estate market predictions, you should start buying and getting properties ready to flip by the end of this year.

Real estate markets move quickly, so you’ll want to be ready for those falling rates when the market demand spikes. 

If you’re wondering why should I buy when interest rates are so high? here’s the deal: If you buy right now when interest rates are high, you can cash flow them as rates fall. This makes your properties more valuable when you flip them, and cash flow is going to increase.

We’re Here to Help

As a real estate investor, you’ve got to keep up on interest rates. If you need somewhere to start, you can contact us to sign up for our weekly mortgage report. It comes to your inbox and tells you what’s happening in the mortgage industry that impacts you as an investor.

We’re also happy to answer any questions you have about preparing for this upcoming year. For questions or to sign up for our mortgage report, email us at Info@TheCashflowCompany.com.

Remember, prepare now to keep the money train rolling in 2024!

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3 Strategies to Raise Your Credit Score

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3 Ways to Quickly Increase Your Credit Score

If you’ve ever wondered how to raise your credit score overnight, you’ve come to the right place.

Let’s take a look at three easy strategies to help you prepare for this financial gain: 

1. Increase Available Credit to Lower Usage

Banks look for an ideal credit usage of around 30%. This means that you’re only spending about 30% of the available balance.

For example, if you have a maximum credit line of $1,000 and you’re frequently spending $800, that is 80% usage. When lenders see such high usage, it tells them you’re really pushing the limit of that credit. Often, high usage signals a struggle to meet financial obligations.

You can fix this in two ways:

The first is to apply for a higher spending limit as noted above. The second is to lower your usage. If you’re working in real estate investing, chances are lowering usage is difficult, so we recommend asking your credit card company for a higher limit. 

2. Pay Extra to Raise Your Score

Another significant factor in calculating your credit score is the monthly reported balances to the credit bureaus. 

A good way to quickly raise your credit score is to pay extra whenever possible. If you have a little extra cash at the end of the month before your statement is due, this is an easy way to keep a negative report from being filed.

The score will go up, and the credit bureau (and you!) will be happy.

3. Get a 60-90 Day Note or Usage Loan

If those first two strategies don’t really work for you, then you can always take a third approach: find a loan.

You can apply for a short-term 60 or 90 day note. These are available from most banks, or you could look to family and friends for the small loan. You can also go through private lenders like us for a usage loan. 

A usage loan allows you to move the credit card balance off of that card (and away from your credit score). It can fix usage issues instantly as might be obvious by the loan’s name.

Also, by moving that balance to a different place, you’ll often find better deals which can allow you to pay off the usage loan more easily than you could have paid off the credit card.

 

Read the full article here.

Watch the full video here:

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DSCR Loan Calculator: Understanding Monthly Payments

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Looking at a DSCR loan calculator and wondering what numbers you need to plug in to make everything come out even? 

If you’re new to the DSCR game, you’ve likely heard people talking about the DSCR ratio and how that number helps you set rents. But how do you actually calculate all of that? 

There are quite a few numbers that go into calculating a DSCR ratio (which is then often used to calculate rents).

What is a DSCR Ratio?

A DSCR ratio is simply the break even point. 

Essentially, you start by adding up all of your monthly expenses (mortgage payments, taxes, insurance, HOA fees, etc.). If you compare that number to the amount you’re charging for rents and those numbers are the same (you’re putting out and bringing in the same $$ amount), then you have a DSCR ratio of 1.

You never want a DSCR below 1 (spending more than you’re bringing in). However, a ratio of 1 simply means that you’re breaking even. In other words, you’re not actually making money unless you can raise the ratio (and raise rents) in order to bring in more money than you’re spending.

Lenders like to see positive cash flow, so it’s typically good to aim for a DSCR ratio of 1.25. That means you’ll make 25% more than you’re spending. 

How To Calculate Monthly Loan Payments

One of the most significant outflows of cash is the loan payment. In addition to fixed costs (think taxes, insurance, etc.), these payments are a significant factor of a DSCR plan. Once we know how much money is going out every month, we can figure out how much we need coming in.

The property in our example cost $250K and the investor paid a 20% down payment. 

  • Purchase Price = $250,000
  • Down Payment = 20%
  • 30-Year Fixed-Rate (8.5%) DSCR Loan = $200,000

The easiest way to calculate your monthly payments is to use a calculator designed for these numbers. We recommend using a site like calculator.net and selecting their amortization calculator. 

You can plug in the numbers, and it will do the work for you.

Once you plug in the numbers and hit calculate, you’ll see that your monthly loan payments are just under $1,538.

Updated Monthly Costs:

  • Fixed Costs Approximate Estimate = $450
  • Approximate Loan Payments = $1,538
  • Total = $1,988

Now that you know all of the money you’re paying each month, you know that to hit a DSCR ratio of 1, you’ll need to have rents of at least $1,988 in order to break even.

When working with your DSCR loan calculator, the monthly payments are a critical component to set you up for success.

 

Read the full article here.

Watch the full video here:

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What is a DSCR Ratio?

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The DSCR ratio is the foundation of successful DSCR investing. But what is it and how can you use it to build income?

When getting into the DSCR game, it’s important to run some numbers on the front end to evaluate potential deals. 

How do you know if your property is going to meet DSCR requirements? What’s the minimum loan you’ll need, and what’s the maximum you can shop for the purchase price?

Today we’re going to look at these calculations, walking through how you can get pretty good estimates for these numbers using the DSCR ratio and the average rent rate in your local area.

It All Starts With The Ratio

The DSCR ratio is simply the break-even point for that property. Essentially, if the ratio equals 1, then the total cost of the project is canceled out by the incoming rent.

These costs are decently easy to estimate by talking to other investors in your area. You can often find HOA or tax information online which will help you figure these numbers.

Understanding the DSCR ratio is the foundation for successful investing. 

By building your investment strategy off of this ratio, you know that, at the very least, you’ll break even by sticking to a DSCR ratio = 1. 

Once you’re sure you can break even, you can even set your rents slightly higher (or try to keep costs lower) to have a higher ratio of 1.25 (where you’ll have 25% higher income than outgoing cash). This typically comes in a later step which you can read about in a previous article. 

 

Read the full article here.

Watch the full video here:

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How to Boost Your Credit Score Overnight

Categories:

If you’ve ever wondered how to boost your credit score overnight, you’ve come to the right place.

Having a strong credit score is like having a really good baseball team. It doesn’t guarantee an instant win, but it sure helps! The better your team (and credit score), the more home runs you can look forward to in your investment season. 

When you win the credit score game, you win countless opportunities. These include good rates, good loans, and more opportunities that can, in the end, add up to hundreds of thousands of dollars.

What is a Good Credit Score and Why is it Important?

Typically, banks consider a credit score “good” when it’s 700 or higher. 

The higher your score, the better your chances of taking home a big trophy. 

It’s important to note that not every lender is equally concerned with credit score. Some private money lenders care more about the specific deal or their relationship with the investor. This can be really helpful to keep in mind if you need to apply for a usage loan or some other method of raising your credit score.

3 Strategies to Boost Your Credit Score

Let’s take a look at three easy strategies to help you prepare for this financial gain: 

1. Increase Available Credit to Lower Usage

Banks look for an ideal credit usage of around 30%. This means that you’re only spending about 30% of the available balance.

For example, if you have a maximum credit line of $1,000 and you’re frequently spending $800, that is 80% usage. When lenders see such high usage, it tells them you’re really pushing the limit of that credit. Often, high usage signals a struggle to meet financial obligations.

You can fix this in two ways:

The first is to apply for a higher spending limit as noted above. The second is to lower your usage. If you’re working in real estate investing, chances are lowering usage is difficult, so we recommend asking your credit card company for a higher limit. 

2. Pay Extra

Another significant factor in calculating your credit score is the monthly reported balances to the credit bureaus. 

A good way to quickly boost your credit score is to pay extra whenever possible. If you have a little extra cash at the end of the month before your statement is due, this is an easy way to keep a negative report from being filed.

The score will go up, and the credit bureau (and you!) will be happy.

3. Get a 60-90 Day Note or Usage Loan

If those first two strategies don’t really work for you, then you can always take a third approach: find a loan.

You can apply for a short-term 60 or 90 day note. These are available from most banks, or you could look to family and friends for the small loan. You can also go through private lenders like us for a usage loan. 

A usage loan allows you to move the credit card balance off of that card (and away from your credit score). It can fix usage issues instantly as might be obvious by the loan’s name.

Also, by moving that balance to a different place, you’ll often find better deals which can allow you to pay off the usage loan more easily than you could have paid off the credit card.

We Can Help!

If you take one, two, or all three approaches to boosting your credit score, then you should see better deals flying your way almost immediately.

If you want to discuss options such as a usage loan or even business credit cards, reach out to us at Info@TheCashFlowCompany.com. 

Our team is always ready to help.

We’re eager to set you on a path that helps you make the kind of money you need to live the life you want.

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