Let’s Mortgage

Hey Friends,

I hope all you moms out there had a terrific Mother’s Day. Whether it’s flowers or breakfast or a fabulous movie, I hope the day was spent on something special just for you. And now that June is just around the corner it’s time to start thinking about all the dads out there. You know, they need something special, just like all the moms. And if your dad isn’t with you anymore, then I hope you remember him with happiness and a smile.

This month I’m talking about credit and credit scores. Oh yes, I hear you moan. But I think you’ll find this information surprising. In fact, I think your savviest clients may be surprised by this. It’s something they really need to know about.

What am I talking about?

The 30% Rule

Let me dispel a common misconception right away: Having debt or credit card balances isn’t automatically a problem for credit scores. In fact, responsibly managed credit actually helps build stronger scores. The critical factor your clients should understand is credit utilization—the percentage of available credit they’re currently using.

Here’s the golden rule: Utilize credit wisely and properly. Don’t use more than 30% of available credit at any one time.

Think about it this way: A client with a $100,000 credit limit who carries a $20,000 balance (20% utilization) will likely score better than someone with a $30,000 limit carrying the same $20,000 balance (67% utilization)—even though they owe the same amount!

Why Utilization Matters So Much

Credit utilization accounts for approximately 30% of a FICO score calculation. When your clients exceed that 30% threshold, it signals to lenders that they might be overextended financially, even if they pay their bills on time.

For your high-net-worth clients who might make large purchases, this creates an unexpected challenge. A client might charge $25,000 for a home renovation on their card with a $50,000 limit—putting them at 50% utilization and potentially dropping their score right before a mortgage application.

Strategic Credit Management for Your Clients

Here are some practical strategies your clients can implement:

1. Request credit limit increases before applying for a mortgage, which automatically lowers utilization percentages

2. Pay down balances strategically before the statement closing date (not just the due date), as this is when most card issuers report to credit bureaus

3. Spread larger purchases across multiple cards rather than maxing out a single card

4. Keep older accounts open even if rarely used, as they contribute to available credit without affecting utilization

Looking Ahead: Credit Scoring Changes on the Horizon

It’s worth noting that our government is actively working on new credit scoring models which will take effect in three to four years. These new models aim to create more inclusive and representative scoring systems, but the fundamentals of responsible credit management will remain important.

Expert Guidance Makes the Difference

Even clients with substantial assets can be caught off guard by credit utilization issues. That’s where specialized expertise becomes invaluable.

I’ve helped countless clients navigate these complexities and prepare their credit profiles before applications—sometimes resulting in score improvements that save tens of thousands in interest over the life of their loans.

If you have clients preparing to purchase or refinance property in the coming months, I’d love to offer a complimentary credit consultation. Having an expert review their credit profile early in the process ensures they’ll be in the strongest possible position when application time comes.

Let’s connect to discuss how I can help your clients understand these concepts and prepare their credit for the loan process. Together, we can ensure they secure the best possible terms for their next real estate transaction.

Here’s to making smart financing easier for everyone!

P.S. Don’t let your buyers settle for ineffective financing. Let’s guide them toward the best financing options together. I’m available at (865) 745-5626.

Food For Thought:

East Tennessee is expecting a healthy market for real estate. It’s expected we’ll see continued growth, but at a slower pace. Home prices are on the rise, but inventory is also on the rise. This might actually ease pressure on high prices. And there’s more good news. Mortgage rates are expected to remain relatively stable, at near 6.0%. Despite this good news, some high demand areas like Knoxville remain competitive, and buyers need to act quickly.

Happenings:

Do you love classic films? Especially if they’re on a big screen under the stars? If so, I’ve got something for you to try. The Ijams Nature Center’s “Movies Under the Stars” is back for the 14th year! It’s super fun. Bring a blanket and a lawn chair and indulge in classics like Clue, Mama Mia, and Where the Wild Things Are. And don’t worry about refreshments. You’ll find lots of snacks, tasty meals, and a variety of beverages. So…pull up a chair – a lawn chair, that is – and enjoy the movie!