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Fargo Home Buyer Alert: What is a credit score.



Our credit score can mean the difference between being denied or approved for credit, and a low or high interest rate. A good score can help you qualify for an apartment rental and even help you get utilities connected without a deposit.

So what is it?

Your credit score is a three-digit number generated by a mathematical algorithm using information in your credit report. It's designed to predict risk, specifically, the likelihood that you will become seriously delinquent on your credit obligations in the 24 months after scoring.
There are a multitude of credit-scoring models in existence, but there's one that dominates the market: the FICO credit score. According to myFICO.com, the consumer website for the FICO score developer, "90 percent of all financial institutions in the U.S. use FICO scores in their decision-making process."
FICO scores range from 300 to 850, where a higher number indicates lower risk. What's a good score?
A consumer has three FICO scores, one for each credit report provided by the three major credit bureaus: Equifax, Experian and TransUnion. Unfortunately, consumers currently have access to only their Equifax and TransUnion FICO scores. Experian ended its agreement with myFICO.com in 2009.
What goes into a credit score?
Data from your credit report goes into five major categories that make up a FICO score. The scoring model weighs some factors more heavily, such as payment history and debt owed.

Payment history: (35 percent) -- Your account payment information, including any delinquencies and public records.
Amounts owed: (30 percent) -- How much you owe on your accounts. The amount of available credit you're using on revolving accounts is heavily weighted.

Length of credit history: (15 percent) -- How long ago you opened accounts and time since account activity.
Types of credit used: (10 percent) -- The mix of accounts you have, such as revolving and installment.
New credit: (10 percent) -- Your pursuit of new credit, including credit inquiries and number of recently opened accounts.
Personal or demographic information such as age, race, address, marital status, income and employment don't affect the score.

Different score impact for same missteps
How much does a specific change affect a credit score? The answer is usually "it depends," and for good reason. Credit score developers don't reveal the exact point deductions. The weight of any given activity can also vary for different credit histories.

Within a scoring model, there's more than one formula used to calculate a score, and each formula is designed for a category of consumers with similar credit profiles. The information in your credit report determines which formula is used. If you are new to credit, for instance, the scoring model will put you into a category for people with young credit histories, and use a scoring formula specific to that group. Such groups are called scorecards. Within that group, recent inquiries may cost more points than they would for a different group.

How to check your credit score

Federal law mandates the consumer's right to a free credit report annually from each credit reporting agency, but not to a free credit score. Use our FICO score estimator to get your score range free of charge. To get your exact number, you have to purchase it from a score provider, such as myFICO.com or one of the reporting agencies.

20 Signs You Need a Financial Makeover

1. You charge group dinners on your card and keep your friends’ cash to spend. I actually don’t mind doing this myself as it saves me a trip to the ATM if I need the cash, but if you’re just being stupid and thinking it’s “free money” to go and blow anytime then yeah – you need a financial makeover.

2. You spend more than 40% of your total income on rent. The last time I calculated this we were spending 37% of our total (net) income on mortgages. And I’ll admit it’s not very savvy. But I’ll also point out that we got ourselves into this BEFORE Mr. J. Money came about ;) So I agree with this one here – ya gotta keep your rent/mortgages way below that 40% line.

 3. You’re constantly transferring your balance to get 0% interest on your credit card debt. Bad if you don’t know what you’re doing, but good if you’re Jonathan from My Money Blog (the expert in xfering $20,000+ and milking the extra hundreds of dollars in interest every year;)

4. You pay off one credit card with another. Yes, BAD!!

5. Less than 10% of your income goes to your retirement savings. (Or worse, zero percent!) I wouldn’t say you need a total makeover if you were saving 10% really, even though everyone would love to see you saving 15% or even 25%, but definitely saving 0% is a troubling sign.

 6. You have a credit card that doesn’t give you anything in return, like cash back or airline miles. Haha…well this isn’t the worst thing in the world, but it is a good idea to check and makes sure you’re getting *something* in return for doing nothing ;) You don’t have to do anything different than you’re doing now!

7. You don’t know what IRA means outside of Ireland. (is that supposed to be a joke?)

8. You pay the minimum balance on your credit card each month.Not the best habit to get into, that’s for sure. If at all possible you should be adding in at least $25-$50 more every month to help knock it away as fast as you can. I once paid $2,000 for a $1,200 computer back in the day because I kept just telling myself “I’ll do it tomorrow.” Make tomorrow, today!

9. You don’t open your credit card statement because you can’t bear to see how high the balance is. Oh yeah, definitely not a good sign. You HAVE TO KNOW what you’re dealing with so that you can fix it and get right back on track! And this goes for savings and investments too. If you don’t KNOW what’s going on you’ll just keep sinking and sinking until it takes something tragic to snap you out of it.

10. You don’t keep receipts because they remind you of what you’ve spent. Haha…that’s actually pretty clever ;) STUPID, but clever. Maybe these people should switch to debit cards instead? (I’m assuming they’re using credit cards which allow them to spend way more than they have due to credit limits and such. With debit cards though, you have a breaking point! Once you hit $0.00 you can’t pick up anything else.)

 11. You know your company has a 401k plan, but you have no idea what that is. My favorite tool ever! Just call up HR real quick (right now, actually, stop reading this!!) and ask how much your company matches. Then, tell your sweet old HR lady (or man) that you’d like to contribute that exact same # and make sure to fill out whatever forms you need to do ASAP. Even if you never look at it again, that one move you just made will hook you up years and years to come. So do it!

 12. You withdraw cash frequently from ATM’s that aren’t affiliated with your bank. I don’t know if this one applies as much as maybe it used to. Many banks now reimburse you for your fees so it doesn’t matter where you go (at least online banks do – like my fave USAA, baby!)

13. The number of credit cards in your wallet is higher than the number of dates you’ve had this year. Hahahhahaa…..didn’t see that one coming :)

14. You buy so much on eBay that they’ve awarded you VIP status. Wha wha wha….

15. You want to start a savings account, but then sale season starts again! Is it me or are these going down hill?

16. You don’t have an emergency fund to pay bills should you lose your job. Back in action! YES, emergency funds are KEY to any financial game plan. Whether it’s $100, or $1,000, be sure to be stashing some aside for when you least expect it!

17. Your monthly extra cell phone minute charges are bigger than your monthly electric bill. (I had to go look up my own electric bill to see if this is a good gauge or not, and indeed I think it may. Although if we’re talking about overall cell phone bills and not just “minute charges” then the iPhone kills us!)

18. You overdraw on your checking account more than once a year. Hmmm… once is kinda strict. I’d say not more than 3 times a year cuz sometimes weird things just happen. Although if you were really on top of it you’d sign up for overdraft protection (the kinds that don’t cost you any money!) so that you’d be safe just in case you got a little crazy here and there.

19. You live paycheck to paycheck. This should be the #1 sign you need a makeover, hands down. Living paycheck to paycheck is a recipe for disaster, and I know 80% of you reading this right now are in this boat :( I was too!!! For 25 years of my life! If you haven’t been serious about making a change, please start today. There are plenty of ways you can get yourself in better position, you just have to get on it and really commit. Start tracking your money and finding where all your spending leaks are! Picking up a hustle on the side will help too.

 20. You spend more on new shoes annually than you save. Oh wow, that would not be good. I think I’ve spent around $200 so far on shoes this year – and 2 of those were on new cleats that needed replacing. I would punch myself in the face if I was saving less than that every year :(

 Were any of you surprised with your answers to some of these? Did it get you to double check and see if you’re truly on track or not? Again, some of these were pretty crazy and more entertaining than anything, but hopefully it moved a few marbles upstairs and will prompt you to start researching any areas that may need improvement. It’s always a work in progress :)

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Take Charge When Buying a Home

If you approach the home buying process intelligently and with confidence, you are much more likely to emerge with a house you'll be proud to call home.

Approaching the task of buying your next home can be overwhelming. There's so much to consider.

How much house can I afford, and how can I find the best loan? Where will I come up with a down payment, and how much will I need? Should I buy a new or resale home, and which will go up in value? Should I use an agent or look at homes on my own?

And these questions are just the beginning. Buying a home is one of the largest financial transactions in your lifetime, yet we don't teach about it in school. You're just supposed to pick it up along the way.

Well, as you start down this road, let me give you a little advice. Here are the two most important things to remember no matter where you are on the road to ownership:

1. You can and should understand everything that is happening in the home buying process. There is nothing, and I mean nothing, that is so complex that it can't be easily explained to anyone with average intelligence, and you've got more than that. Just because we don't apply for a thirty year mortgage once a week doesn't mean we have to take the first one that comes along. You'll need to learn some new terms, apply some new concepts and take the time to understand what you're getting into. If anything happens at any point in the process that doesn't make sense to you, simply demand a full and complete explanation. If it still doesn't make sense, seek help from someone you trust like your CPA, your banker or maybe your friendly online real estate columnist.

2. In the world of real estate sales, YOU are the most important person in the entire process. It's easy to think that everyone else carries more weight than you. The agent talks fast and has an answer for everything. The lender may decline your loan application, and on and on. But the truth is that you, the buyer, are the one person in this transaction that makes it all happen. If you decide to not buy, the entire process comes to a grinding halt. So flex your consumer muscle and take command of this process. Surround yourself with a team of professionals that you have confidence in and make them work for you.

If you plan from the beginning to approach the home buying process intelligently and with confidence, you are much more likely to emerge at the end of the day with a house you'll be proud to call home, and the knowledge that you made the right decision.

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Home Prices Rise at Fastest Pace in Over Six Years

Home-price appreciation is accelerating in much of the U.S., offering the latest confirmation that the housing market is turning after the most severe property downturn since the Great Depression.

Prices rose by 8.1% in January from a year earlier, the largest such gain in 6½ years, according to figures from the S&P/Case-Shiller index of home prices in 20 major metropolitan cities released Tuesday. All 20 cities posted annual increases.

Buying A Home Plan for Younger People – Make Sure to Plan Ahead

Granted, few young people spend much time day-dreaming about buying their first home. They're naturally preoccupied with academics, athletics, parties, dating and future career possibilities. Nonetheless, there are a number of good reasons to start learning early in life about the costs of buying a home and the responsibilities of homeownership. For example, a college student's misuse or abuse of credit cards can preclude his or her buying a home later on.

Here are five recommendations for young people who want to position themselves for homeownership:

1. Establish good credit habits and a favorable credit history. Get a credit card and use it responsibly. Apply for an automobile loan and make your payments on time every month. If you're renting an apartment, put your own name on the lease and the utility bills and make sure the rent and the bills are paid every month. If you're already struggling with credit card debt or have large student loans, take a free workshop from the non-profit Consumer Credit Counseling Service. Call (800) 388-2227 for information.

2. Start saving for a down payment and closing costs. It's possible to purchase a first home in many parts of the country without much in the way of savings. But in high-cost housing areas, starting to save early can be enormously beneficial because you'll get the advantage of compounding interest and have a longer period of time to grow your investments. Open a savings account or a stock brokerage investment account and make regular deposits.

3. Read some books. Your local library and bookstore probably have at least a few shelves of books about financial management and buying a home. Take notes. Make a financial plan for yourself.

4. Research where you'd like to live. Many young people assume they'll continue living in their own home town when they get older, but people are more mobile than ever and chances are good you'll one day live in another city or even another state. Again, the library, bookstore and Web can be excellent resources for information about housing costs and homeownership opportunities around the country.

5. Tap your real estate agent relatives for advice. Parents, grandparents, aunts, uncles or older cousins in the real estate business can give you good information about the cost of housing in the area where you want to live and what it takes to buy a home. Questions to ask: Is housing affordable in this area? How much money would I need to save in order to buy a home? What advice would you give me about planning my financial future? Would you recommend some books that I might like to read about buying a home? Don't be shy. If you have a question, ask someone in a position to know the answer.

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How Much Money Do I Have to Save to Buy A Home?

The first thing to understand about buying a house is that you don't have to have all the cash saved up in order to make your purchase.

The good news is that there are lots of folks out there who are very interested in lending you as much as 95% of the purchase price of your home, at very favorable interest rates. Furthermore, they are willing to spread out the payments over a long period of time so that you can afford the house you want.

Just to cover the basics, let's elaborate on the points in the last paragraph:

If you have a steady job and a reasonable credit history, there is a good chance that you can find a home lender who will lend you most of the purchase price of your new house. Home loans are also called "mortgages," which comes from a Latin phrase meaning "pledge unto death." While lenders don't take your promise to pay quite that seriously, they DO expect to get repaid on time. Just to make sure you remember, lenders take an ownership interest in your house until the loan is paid in full.

Home loans typically are offered in amounts of 80%, 90% and 95% of the price you are paying for the house. You are expected to pay the remaining amount in cash from your own savings. As you might imagine, the lower percentage loans are somewhat easier to qualify for.

The reason the lender is willing to lend you up to 95% of the value of your house is that history has shown real estate to be such an excellent investment. Lenders expect that your home will be worth more in the future than it is today - so their investment in your home is considered very safe.

That's also why the interest rate you can obtain on a home loan is one of the best around. Consider that America's largest and strongest corporations borrow at what is called the "prime rate," and that today you can borrow a home loan - fixed at the same rate for many years - at substantially less than the prime rate. Lenders have found that home loans tend to be excellent investments, and you benefit every month when you make your loan payment.

Finally, home loans are available to be repaid over terms of usually 15 or 30 years. The shorter term loan offers a slightly lowered interest rate, so if you can afford the higher monthly payments, you'll save in interest costs by choosing the 15 year loan. At today's interest rates, a 15 year loan costs about 27% more than a 30 year loan in terms of your monthly payment. But the amazing thing is that lenders are even willing to offer a fixed rate loan for that time period. It's better financing than you can get on just about any other investment.

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