Category

Mortgage

Oct 03
0

Can You Buy a House With Bad Credit?

By | Home Buying, Mortgage

Buying a house is a dream many people have, but it can seem out of reach when you have bad credit. While it’s certainly easier to qualify for a mortgage loan with a credit score of at least 620, it’s not impossible if your score is lower. You just have to prove to lenders that you’ll pay your mortgage on time every month for years, and having a good credit score is only one way to do this. If you’re hoping to become a homeowner without first having to spend years improving your score, take a look at some of your options.

Bad Credit Buy House

Bad Credit? Check Your Credit Report for Errors

Your first step is to get a copy of your credit report. You might be surprised by your score, as it could be higher or lower than you assumed. Be sure to look over the entire credit report, because you might find an error, such as a bill in collections that you actually paid. If you do find an error, report it right away to the creditor so you can get it removed from your credit report before you get a mortgage.

If your score is low and you are getting ready to look at houses, you have a chance of improving your bad credit at least a little in the next few months. Start by making every payment on time, and then pay down any credit cards that have high balances. If you have a late payment on your credit report, try contacting your creditor to see if you can get it removed, as this is a possibility if you’re a loyal customer and are not normally late.

Similarly, if you have collections on your report, ask the creditor if you can pay the amount past due in exchange for the collections being removed from your credit report. In some cases, even boosting your score by as little as 10 or 20 points can make a difference, since it might take your score from poor to fair.

Make a Big Down Payment

If your credit score still falls into the bad or poor category when you’re ready to buy a house, rest assured you can likely still get a mortgage loan. You just might have to pay more upfront. Making a big down payment can help you get a loan, because it reduces the amount of money you need to borrow. This makes it more likely that you’ll be approved.

In addition, if you put down 20 percent or more, you should be able to avoid private mortgage insurance (PMI), as you typically have to pay this monthly if you put down less than 20 percent. And of course, the more money you put down on the house now, the less you’ll end up paying in interest over time. So there are benefits to saving up a good down payment, regardless of what your credit score is.

Look for a Loan That Doesn’t Require Good Credit

Typically, mortgage loans require you to have a credit score of about 620 or more, which is why buying a house when you have a lower score can be challenging. However, it’s not impossible, in part because there are loans that don’t require a score of 620 and up. They don’t require a large down payment, either.

FHA loans are a good example of this type of loan. This loan is backed by the Federal Housing Administration, which makes lenders more willing to offer money to borrowers with bad credit, as the loan will be repaid either way. With an FHA loan, your credit score can be as low as about 580. You just have to have a down payment of 3.5 percent, which is still much lower than the typically recommended 20 percent. This is why FHA loans are usually appealing to homebuyers who have bad credit.

Show Lenders Why You Should Get a Mortgage Loan

Typically, lenders use computer systems with algorithms to determine which homebuyers are eligible for mortgage loans. This is why it’s easier to get a mortgage loan when your credit score is high. However, it’s not all about the algorithm. Many lenders are willing to overlook low credit scores if you have something else to offer as a borrower.

For example, if you have a great rental payment history, let your lender know, since this shows you’re likely to make your mortgage payments on time. And if you have a lot of money in savings, such as enough to pay your bills for about six months, show proof of this to your lender. This suggests that even if you lose your job or suffer other financial setbacks, you’ll still be able to pay your mortgage, and that’s what’s most important to lenders considering letting you borrow money for a house.

As you can see, you definitely have options when it comes to buying a house with bad credit. But if you’re not in a rush to buy right now, it’s a good idea to spend some time and effort improving your credit score. You can even contact a credit repair company for help getting started. After all, the higher your score is, the more options you’ll have when it’s time to buy a house.

Source:

https://www.nolo.com/legal-encyclopedia/five-reasons-make-large-down-payment.html

https://www.credit.com/credit-repair/credit-repair-content/dispute-credit-report-error/

https://www.hud.gov/buying/loans

Aug 31
0

Your Credit Report: Prepare for a Mortgage Application

By | Credit Reports, Mortgage

Let’s be honest, not often do we have our credit report on our mind but when the time comes to apply for a mortgage, every point in your credit score matters. While you can get approved with a FICO score around 620, you often need a 740 or higher to get the best rates. If you want to maximize your credit score and potentially save tens of thousands of dollars in interest over the life of your mortgage, follow the following plan.

Credit Report Mortgage Ready

Today – Review Your Credit Report

Go to annualcreditreport.com and review your credit report from each of the three major credit bureaus. You can get a free credit report from each bureau every 12 months. While some people like to spread them out over the year instead of requesting them all at once, it’s important to know that each bureau may have different information.

When you get your credit report, first check it for accuracy. If there are any errors, such as accounts listed that don’t belong to you or accounts incorrectly listed as delinquent, the creditor and credit bureau are required by law to fix them upon notification.

You should also make a list of any negative items that are properly reported. Sending goodwill letters or offering to pay off charged-off accounts may convince creditors to remove that negative information. While a creditor doesn’t have to remove accurate negative information, if any do agree, each one that does will likely bump up your credit score a few points.

3 Years – Build a Credit History

Most mortgage lenders want to see that you have at least two to three active tradelines to show that you can use credit responsibly and make payments on time. A tradeline can include a major credit card, secured credit card, student loan, or auto loan.

While some people prefer to use cash and believe using cash is more responsible, lenders want to see a history of you making small payments before relying on you to make a larger mortgage payment. However, you never need to pay interest or fees to demonstrate good credit usage — you are always free to pay your bills in full each month.

2 Years – Stop Applying for New Credit

When you’re within two years of purchasing a home, it’s time to put your credit on hold. Don’t apply for any new credit no matter how good the sign up bonus is. Your credit score drops slightly each time you apply for credit, and new accounts also drag down your credit score by reducing your average age of accounts.

Even a small hit to your credit score can cost you big. A 0.25% interest rate increase can add about $5,000 in interest per $100,000 borrowed over a 30-year mortgage.

18 Months – Request Credit Line Increases

One thing that you can apply for at this point is credit line increases on your existing cards. If approved, the increased credit limit will help your credit card utilization and boost your credit score. The reason to do it this far out is that if your bank requires a hard credit inquiry for a limit increase, the inquiry only hurts your credit score for 12 months.

1 Year – Start Daily Monitoring

Start watching your credit like a hawk when you’re within the final 12 months. Any surprise changes, even errors, could delay your closing and potentially cost you your dream home. You need to know about any changes as soon as they happen so that you have plenty of time to fix them.

At this point, your free annual credit report isn’t enough. The cost of signing up for daily or weekly credit alerts from each of the three credit bureaus is far less than paying additional mortgage interest or delaying your closing because you were surprised by something on your credit report.

9 Months – Pay Down Debt

If you have additional cash beyond your savings for your down payment, moving expenses and emergency fund, think about repaying any outstanding debt early. While your total monthly payments don’t directly impact your credit score, mortgage lenders do consider your debt-to-income ratio when deciding how much you’re approved for and your interest rate.

If you have credit card debt, even at a zero-percent intro rate, consider paying that off first because your credit card balances can directly lower your credit score in addition to increasing your debt-to-income ratio.

3 Months – Micromanage Credit Card Utilization

While most of your credit score is built over time, up to 30 percent of your credit score is a snapshot of how much of your credit card limits you were using as of your last credit card statement.

  • For a good credit score, use no more than 30 percent of your total credit limits across all cards.
  • For a better credit score, make sure none of your cards are above 30 percent of their individual limits.
  • For an even better credit score, temporarily only use one card.
  • For the best credit score, use between one and ten percent of a single card’s credit limit. (Zero is bad because lenders want to see you paying at least one credit card bill on time each month, and a zero balance doesn’t generate a bill.)

While this may force you to change your spending behavior and miss out on a few rewards points, the benefit of squeezing every last point out of your credit score is much greater.

Found Your Dream Home – Mortgage Application Time!

Once you’re approved, you can relax and stop worrying about micromanaging your credit, but keep the good money habits you developed to save on future car loans, get better credit cards and improve your personal finances as a whole.

Sources:

  • https://www.creditsesame.com/blog/mortgage/how-to-prepare-credit-buy-a-home/
  • https://www.thebalance.com/before-you-apply-for-a-mortgage-960362
  • http://www.creditcards.com/credit-card-news/5-steps-mortgage-worthy-credit-profile-1270.php
  • http://www.creditcards.com/credit-card-news/credit-limit-utilization-ratio-use-charge-1267.php
  • http://www.bankrate.com/finance/mortgages/how-credit-scores-impact-your-mortgage-rate-1.aspx
May 25
0

Short Sale vs. Foreclosure and Your Credit

By | Mortgage

Financial trouble can be disastrous for American homeowners. After missing four to five mortgage payments, a lender will typically foreclose on your mortgage. This puts you out a home and results in a hefty bad debt showing on your credit file. Meanwhile, a short sale is an “exit strategy” that lets you pay off as much of the debt as possible.

Short Sale vs. Foreclosure

How a Short Sale Affects Your Credit

It is common knowledge that a foreclosure is bad for your credit score. But a short sale is an alternative that can reduce the amount you have to foreclose. Accomplishing this will require selling the home before the foreclosure takes place. When this is an option, it can result in much less bad debt showing on your credit report.

The short sale will still lower your credit score for a long time. This entry can stay on your credit report for up to seven years. You can lose anywhere from 85-160 points, depending on your current FICO score and the severity of your short close. The majority of your score drop will go away within two years if you sustain good credit otherwise.

No Late Payments on a Short Sale

Are you aware that you will be unable to pay for your mortgage in the near future? For example, you might be going through divorce procedures and realize that the home is too expensive for either party to uphold. It makes sense to do a short sale at this point, but what does it mean for your credit score if you avoid late payments?

The biggest benefit is that you will not have late payments on your credit report. Your first late mortgage payment can drop your FICO score by 90-110 points. The actual damage depends on your score before the late payment; for example, if your score is 730, this number could drop below 650 after your first missed payment.

Now, there are two problems that interfere with this happy ending:

  1. Sometimes You Need Late Payments

While not always the case, many lenders will require you to run late on your mortgage payments to qualify for a short sale. That requirement exists for FHA home loans, which need to be a minimum of 31 days late by the time the sale closes. Otherwise, FHA will not approve the transaction. This means you need to withstand the FICO score drop that comes with running late on a mortgage payment. Thankfully, this not a requirement if your mortgage is through Fannie Mae or Freddie Mac.

2. Your Home Has to Sell Pretty Fast

After 90 days or so, there will be more pressure to perform a “deed in foreclosure,” which works the same as a voluntary repossession. This entry factors into your credit report the same as a foreclosure, which means it is more harmful to your credit score than a short sale. Thus, your home needs to sell pretty fast or else the benefits of a short sale are minimal.

You can always take action to make the voluntary repo show better on your file. The main thing is to request the entry to show as “paid as agreed,” on your report. If the lender does not comply, you can then ask for it to be marked as “settled,” or “unrated.” These are all better entries than “foreclosure,” which is a reporting option for your lender.

How a Foreclosure Impacts Your Credit Score

A foreclosure is a more serious way of handling an unaffordable mortgage. You are giving up the debt and the lender must assume full liability. A short sale can let you capture on any real estate market gains to mitigate some of the losses. The remainder (“the deficiency”) is all you are left on the hook for, although some creditors will sue you in court for these funds.

But, with a foreclosure, you are effectively walking away from your mortgage in the most irresponsible way possible. There is no chance to determine the value of your home and the amount of bad debt becomes your entire mortgage balance. This means failing to short sell when running late on payments during a hot real estate market can be costly.

FICO Score Change from Foreclosing

You can expect your FICO score to drop by anywhere from 85-160 points depending on the specifics of your foreclosure. This typically happens when you run many months late, and by the time the debt closes, you will certainly have a 120-day late entry on your credit. This late payment entry holds longer than a single 30-day late payment; while a short sale will mostly age off after two years, a foreclosure will weigh your FICO score down for longer.

A foreclosure often comes with more serious financial struggles than a short sale, because short selling is pre-foreclosure and comes with foresight. Doing a short sale of your home can prevent you from going bankrupt at times. If your foreclosure pairs with a bankruptcy, your FICO score could drop by as much as 240 points.

Conclusion: Go for a Short Sale When Possible

The truth is that your score will suffer for at least two years, regardless of what you choose. The short sale will be less damaging, though, and it will not be as hard to keep building your credit as it would be after foreclosing on your home.

Remember that large FICO score drops occur from late payments, foreclosures and short sales alike. But it is the reporting terms that decide how severe the drop is and how long it takes to recover.

Sources:

https://blog.equifax.com/credit/can-one-late-payment-affect-my-credit-score/

http://homeguides.sfgate.com/fha-guidelines-short-sale-2478.html

https://www.thebalance.com/deficiency-judgements-after-foreclosure-1798478

http://homeguides.sfgate.com/much-credit-score-decrease-foreclosure-1417.html

https://www.thebalance.com/how-much-will-bankruptcy-hurt-

Mar 08
0

How Will Trump Affect Mortgage Rates?

By | Mortgage

Donald Trump could start a war with a tweet. All jokes aside, though, his policies are sometimes revolutionary. He has the power to move markets and influence mortgage rates.

There are hundreds of sites covering what his policy changes might mean for mortgage rates. You might get some misinformation along the way, so we’re going to explain what might really happen now that he’s in office.

President Affect Mortgage Rates

Trump’s Potential Impact on Mortgage Rates

The primary indicator of mortgage rates is the Fed funds rate. This means the stance of the Federal Reserve will dictate what mortgage rates will be. Trump already receives mainstream credit for today’s $20-trillion stock market.

The higher businesses go, the more innovation can happen. Automation and artificial intelligence have promise. More and more Americans are becoming self-employed and working online from home.

Pair the two and you can start to see a different type of workforce – but what’s under the surface? It’s a stronger US economy with better-paying jobs and plenty of good, long-term investment opportunities.

If all this plays out, the US will be performing sufficiently for the Federal Reserve to raise interest rates back to the five-percent and higher range. This would increase mortgage rates enough to boost premiums by hundreds of dollars a month.

Trump Has Already Made an Impact

Only a few weeks into the new administration and the market is already off to a rocky start: the new President has quickly made homeownership more expensive. Within hours of taking office, he suspended President Obama’s FHA rate cut for average credit borrowers. This reversal effectively means FHA-backed mortgage insurance premiums will be flat or increasing in the near future.

Homeowners are now missing out on approximately $20 a month in savings on every $100,000 in FHA home loans. This impacts anyone shopping for a home as well because the premiums after you buy will not be as cheap as you thought. Premiums could increase in price and it’s even possible for the previous rate reduction to be recalled too.

Retracting the FHA insurance premium rate cut was a move which signaled further increases in US house prices. There’s now more pressure on buyers to enter the market before rates start increasing continuously.

The Federal Reserve is already anxious to increase rates and wants to do so multiple times before the year’s end. Each time a rate hike occurs, it means your mortgage payment goes up.

FHA Loan

FHA Loan Applications Falling

The month of January saw a 14-percent drop from its 2016 high. FHA refinancing applications rose seven percent from the previous year, showing the stigma surrounding expectations over higher home buying costs.

This impacts borrowers and homeowners planning to refinance the most. It’s particularly damaging to those with credit scores below 680, as they were the ones who received the rate cut.

Where Homeowners Have It Good

The US housing market is rising to new heights. As of February 2017, refinanced mortgages made up 59 percent of all home loans. This is because a rising market unlocks the doors to favorable terms sooner for recent home buyers looking to refinance or fix in rates. You’ll have access to better mortgage rates after gaining equity in your home, even if it’s just due to the market going up it will benefit you.

The upward pressure makes it a lucrative opportunity for home buyers with less-than-perfect credit. You can actually use your home mortgage as a credit-building mechanism too.

Furthermore, with an FHA loan (which requires a 580 FICO score), it’s possible to finance a home for you and your family. However, keep in mind that most lenders still want at least a 620 credit score.

Trump’s Impact on the US Economy

It’s imperative to look at the full picture. The US economy running strong is justification for the Fed to increase rates. When operations aren’t in lockstep, the current low-interest rates could hold steady or even drop. Negative interest rates are even possible in the worst of circumstances.

Leading into Trump’s inauguration, the Federal Reserve’s intention was to hike interest rates three or four times this year. Forecasts put the Fed funds rate at as much as three percent when 2017 ends. Such a move would result in a premium increase of $125 or more on a $100,000 25-year mortgage.

Trump’s perspective on the US economy casts a different light from the rhetoric of recent Federal Reserve meetings. The President believes the American dollar is too strong and currently supports the demise of the strong dollar policy. Such a move could devalue the greenback and result in a change in conditions for the Federal Reserve.

His unpredictability is what makes everything so hard. Notwithstanding damage to the strengthening greenback, outside of currency speculation, he has plans for a trillion-dollar investment in America. This could go boom or bust, for if things prosper, the US will have its economy running on all cylinders.

Conclusion

It’s not Trump that’s leading mortgage rates. However, he can have an indirect influence based on how his policies impact the economy. You’ll want to pay attention to the Federal Reserve’s statements. They influence mortgage rates the most, and any time interest rates rise, you can expect home lenders to follow suit.

Sources:

http://www.cnbc.com/2017/02/13/us-markets.html

http://realtormag.realtor.org/daily-news/2017/01/23/trump-puts-halt-fha-mortgage-cuts

http://www.cnbc.com/2017/01/17/trump-just-signaled-death-of-clinton-era-strong-dollar-policy.html

Jan 19
0

Getting a Mortgage With Bad Credit

By | Mortgage

Mortgage with Bad Credit

Is it possible to get a mortgage with bad credit? The answer is yes, but attempting to do so can pose unnecessary financial hazards. A far more effective plan would be to improve your credit score first and then seek real estate.

Get an FHA Loan

When your credit report is less than stellar, you could try taking out a Federal Housing Administration (FHA) loan, which the government insures. The FHA, by the way, is a division of the U.S. Department of Housing and Urban Development. The requirements for such a loan are relatively lenient. If you’ve experienced a foreclosure or if you’ve filed for bankruptcy, you still might be eligible.

The down payment of an FHA loan amounts to just 3.5 percent of a new home’s total cost. Private lenders often ask for larger down payments, sometimes at rates of 20 percent or more.

FHA loans do have drawbacks, though. To secure one, you’ll need to take out an insurance policy, and its premiums can be more expensive than conventional loan insurance premiums. For an FHA loan, you’ll have to pay an upfront premium as well. A private lender probably wouldn’t require you to make such a payment.

Also, it’s possible that you could obtain an FHA loan only to realize later that you’re unable to make your payments. In the end, it’s better to get rejected for a loan than to get a loan you can’t repay.

Find a Cosigner

Another option is to locate someone who’d be willing to cosign your mortgage. If this person’s finances are sound, he or she should be able to help you procure a lower rate of interest and other favorable terms.

However, this course of action ought to be your last resort. If someone were to cosign your loan, that person would be assuming a major risk. If you failed to make a payment on time or if you were to default, your cosigner’s credit score would be damaged severely.

For that reason, don’t be surprised or offended if those who are close to you decline to cosign. Likewise, if people ever ask you to cosign for them, you should turn them down no matter how much you’d like to be of assistance.

Use Your Negotiating Skills

If you have bad credit, you might still be capable of persuading a lender to grant you a mortgage. Most likely, you’d have to demonstrate that you currently make a lot of money, have substantial savings and aren’t in debt. Furthermore, it may help if you can prove that you’ve paid your rent punctually for the past 12 months or longer.

All of these factors would indicate that you’re financially responsible, and they might convince lenders to overlook your credit score, especially if it dropped due to circumstances beyond your control or because of a one-time mistake that you vow never to repeat.

On the other hand, you might create a financing plan with the person who’s selling the house. That is, you could make a significant down payment and agree in writing to give him or her a certain amount each month. However, many sellers simply have no interest in such deals.

 


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Whipping That Credit Score Into Shape

Given the serious drawbacks to all of the home financing methods mentioned above, there is only one conclusion to draw here. Before you even start looking for a home to buy, you really should make sure that your credit report is impressive enough.

Different credit reporting agencies have somewhat different credit score ranges. But, roughly speaking, those scores extend from 300 to 850. If you want to take out a conventional home loan, you should have a score of at least 650, and 700 or higher is preferable. Don’t panic if yours is less than 650, however.

Rather, there are a variety of ways in which you could raise that number fairly quickly. For one, you could obtain copies of your credit reports, look for errors that aren’t in your favor and tell the agencies about them. In addition, pay off all of your credit card balances. Likewise, if you haven’t always been doing so, start consistently paying your credit card bills on time and in full.

Moreover, with each of your credit cards, don’t utilize more than 30 percent of your credit line during any given month. In fact, to keep your utilization rate down, you might request higher credit lines if you’re eligible for them.

Finally, an outstanding credit repair service can review your specific financial circumstances and find ingenious and highly efficient techniques for boosting your score.

In the end, the strongest reason to avoid taking out a mortgage with bad credit is that you’d most likely get stuck with an extremely high interest rate. Because of that rate, you’d spend thousands of dollars more over the life of your loan. By contrast, you could invest perhaps a couple hundred dollars in improving your credit score. Consequently, you’ll not only obtain a much more affordable mortgage, but you’ll have the ability to work out many other advantageous financial contracts in the future.

Sources:

https://www.bloomberg.com/news/articles/2016-05-10/how-to-raise-your-credit-score-fast

http://www.forbes.com/sites/trulia/2015/02/04/the-pros-and-cons-of-seller-financing/#4ba516f7e822

http://homeguides.sfgate.com/buy-house-down-payment-bad-credit-7377.html

http://money.usnews.com/money/personal-finance/articles/2015/01/30/how-to-get-a-home-loan-with-less-than-stellar-credit

http://www.nytimes.com/2013/12/08/realestate/the-downside-to-fha-loans.html

http://time.com/money/3086800/qualify-mortgage-bad-credit-low-credit-score/

https://www.yahoo.com/news/4-ways-buy-house-bad-152456987.html

Dec 06
0

High Mortgage Payment? Check Your Credit Score

By | Mortgage

Did you calculate the cost and find out your mortgage payments will be high? If so, your credit score could be to blame.

Buying a Home With Average Credit

You need a FICO score of 620 or more to be taken seriously by most traditional lenders. With FHA financing a score of 580 or more is needed, but FHA loans come with other requirements.

The thing is, you don’t want to just have a “good” credit score. There’s a big difference when you’re buying a house. It’s too big of a loan to approach when you’re not an optimal borrower.

The Difference in Monthly Payment Costs

The biggest comparison to make is a $200,000 loan over 30 years. With a FICO score of 620 to 639, you’re looking at a 4.79 percent APR rate. This comes with a $1,048 monthly payment. A borrower with a FICO score between 700 and 759 will pay $890 a month.

As a result, improving your FICO score before financing a $200,000 mortgage can save you $150 a month. There are other poor terms that come with a low-grade home loan. You might effectively lose as much as $250 a month as a result of not qualifying for a better mortgage.

The Cost of Buying a Home by FICO Score

It’s common knowledge that your credit rating affects your interest rate. However, not many realize how much of an impact it will have on the overall cost of your new home. So it’s interesting to see what you can expect to spend when buying a home — based on your FICO score.

Take a look below for a rough run-down with an analysis for a home buyer with a FICO score in the 620 to 659 range. This information comes from the Loan Savings Calculator on myFICO’s website.

Interest Cost Differences

In this score range, you can expect an APR between 4.244 and 4.79 percent. Say you’re borrowing $80,000 toward a home and you plan to pay it off in 15 years.

This averages out to between $574 and $596 a month for mortgage premiums. It also means $23,340 to $27,253 in total interest paid over the 15-year term.

How Much Can You Save on a $200,000 Mortgage Loan?

This scenario gets even more interesting when you look at the purchase of a $200,000 home loan. Borrowing that amount requires having a sizable down payment or income.

This loan will cost a lot more if you take it on while you have only average credit. You might find yourself opting for a 30-year term to avoid the high monthly payments. In this case, the interest difference can “blow your mind” when you discover it.

A low 600s credit rating would mean approximately $150,000 to $175,000 in interest paid over 30 years on a $200,000 loan.

Borrowers with FICO scores in the low 700s can expect to receive $40,000 to $60,000 in interest savings.

Other Benefits of a Better FICO Score

With a strong FICO score, you can bully around lenders. When buying a home, this means you have the power to negotiate the best APR rate possible.

This means you can save a lot on your interest payments. This results in a lower monthly payment too. You could save as much as a few hundred dollars a month.

Being able to pick and choose between lenders is a good thing for other reasons, too. You can gain access to terms like “early buyouts without penalties,” which is hard to find.

This is especially beneficial if you inherit a lot of money or win the lottery. The loan term will make it so you can pay off your last month of interest and buy out the rest of the loan.

Don’t Forget About the Refinancing Dilemma

Next, you need a strong FICO score to qualify to refinance your mortgage. Having the bare minimum is not good enough if the borrowing requirements change over time.

It’s also not helpful if you end up with another blemish that pushes your score below the minimum. When your loan term is up, you might find yourself selling the house or foreclosing if your credit score is low.

The same is true if you’re using a co-signer to qualify for the mortgage. If this person cannot qualify anymore, you might not be able to pull the weight when you attempt to refinance. Since you only gain considerable equity in the later years (due to more interest paid upfront) this is a serious disadvantage.

Remember What Happens Next

When you first take on a new loan, your credit score drops before it ages a bit. The negative effects of the new debt become less month by month. In the end, your good repayment history and strong utilization rate will result in a higher FICO score.

However, in the near term your credit rating will suffer. The large home loan will make you seem like a bad borrower. So you might struggle in financing for even smaller things (like store cards) in the first six months after you finance your home.

Conclusion

If you take in anything from reading this, it should be the fact that a better FICO score means a better loan. This is true whether you’re buying a car or a house. It’s even true when you’re trying to take out a second mortgage.

We went as far as to cover a piece listing four reasons your credit score matters during retirement. You can read that blog post and find even more reasons why you’ll want to build your score before it’s too late.

Nov 10
0

7 Must-Do’s Before Shopping for a Mortgage

By | Mortgage

Mortgage-Ovation-Credit

Owning your own house is a hallmark of independence as well as a major investment. It is one of the most exciting milestones in your life. However, shopping for a mortgage is decidedly less invigorating. You have your credit score to think about and whether you even qualify. It can be a lot of work, so start early. Take care of the following before you start shopping for a mortgage.

1. Your Credit Score

The first step is your credit score. How high or low it is will have a big effect on the mortgage you receive. In general, a higher number translates into lower payments. According to the Seattle Times, getting a mortgage when your credit score is less than 660 (or for some lenders, less than 680) means that you are going to need to put more money down and you could have to pay additional fees. In general, to get the best rate, you will need a credit score of more than 750.

2. Qualifying for Credit

Further, you may need a minimum credit score to even qualify for a home loan. “While there are many qualified borrowers in the 580 range, the market today is probably (looking for) 640 to 660, at a minimum,” says former U.S. Department of Housing and Urban Development official Vicki Bott. In other words, it doesn’t matter how much money you make, how little you owe or how much you can put down — you could still be denied a mortgage.

3. Deciding on a Mortgage Budget

Would-be homeowners should also decide on a budget. Any loan from the Federal Housing Administration will require that your mortgage payment not exceed 31 percent of your income except under specific circumstances — and even that could be on the high side. The Credit Union National Association advises that your mortgage payment not be more than 28 percent of your gross pay, and Dave Ramsey suggests a maximum of 25 percent of your take-home pay. Being more conservative with your budget means that you have extra cash available for the type of expenses homeowners have to endure, such as a new roof or maintaining your furnace.

4. Pay Off Debt

One top suggestion is to pay off any debts you have before you begin the mortgage application process. Credit card debt can be a real hindrance to getting approved, but other debts play a role as well. Car loans, medical bills and student loans can eat away at your monthly cash flow. Aside from impacting your credit score, it may also play into the amount that the bank is willing to approve and the amount of payment you can comfortably make each month. You will need to keep debt payments in mind as you decide on a budget. Making a plan to pay them off before applying for a mortgage means one less thing to think about.

5. Save Money

Remember that buying a home requires certain upfront costs. You will need to cover closing costs as well as a down payment. Many conventional loans are going to require 20 percent down. Even if you have enough in your bank account to cover that lump sum payment, will you have enough left over to weather a storm if a worst-case scenario happens and you lose your job or the home requires extensive work before you have time to rebuild your savings? These are important issues to consider.

6. Credit Report Review

Before you attempt to purchase a home, you should also have someone review your credit report. This way, you can identify any potential issues BEFORE you begin applying for loans. At Ovation Credit Services, we review your report to see if there’s anything affecting your score before you start the mortgage process and can advise you on the next steps to take to improve your odds of getting the best home loan rates and terms possible.


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7. Credit Repair Is Possible

If your credit report needs some work or you aren’t happy with the interest rates and terms your credit score will garner you, remember that credit repair is possible. Working with an established company like Ovation helps ensure that you aren’t penalized for debts that have already been paid or settled. We can also help you identify areas you could target to improve your credit score.

It’s tough to take a hard look at whether you can actually afford to buy a house and what your price range really gets you. Having an outside party take a look at your credit report gives you a more objective perspective into what lenders like to see and the factors that play into your credit score as well as the impact your credit score has on the terms and interest rate you receive for your mortgage.

Sources:

HGTV: What to Know Before Buying Your First Home
http://www.hgtv.com/design/real-estate/what-to-know-before-buying-your-first-home

Dave Ramsey: 5 Must-Dos Before You Buy a Home
https://www.daveramsey.com/blog/5-must-dos-before-buy-home

Seattle Times: 6 Must-Dos Before Buying a Home
http://www.seattletimes.com/business/6-must-dos-before-buying-a-home/

U.S. News & World Report: 7 Things to Always Do Before Buying a Home
http://money.usnews.com/money/blogs/my-money/2014/06/25/7-things-to-always-do-before-buying-a-home

Aug 22
2

How Credit Scores Impact Mortgage Loans

By | Credit Repair, Credit Scores, Home Buying, Loan, Mortgage, Your Credit

Credit Scores Impact Mortgage Loans

Are you working towards financing a home? You probably know how your credit rating will impact your loan qualification. You pretty much need the minimum credit rating for FHA home loans, which is a 580 FICO score. If you cannot qualify for FHA insurance, you will be hard-pressed to find any lender until you fix your credit.

There are many implications that your credit rating can have on your prospective home loan, such as whether you actually qualify for the mortgage, how low of an interest rate you will get and what type of lender will work with you.
Now, there’s also an unspoken factor: how much your mortgage will cost in total.

How Your Mortgage Could Cost More

When you apply for home financing with a bad credit score, it is unlikely that a major bank will approve you. Since it is the major banks that get the best borrowing rates in the first place, your alternatives will be more costly. In the worst case scenario, only a private lender would consider you.

You might be somewhere in the middle and can get a home loan through a financial institution that accommodates bad credit borrowers. There are many reputable lenders in this area, but you still face the issue of a higher interest rate. This is because the banks know you are a higher risk.

Tip: Get your mortgage through a highly legitimate financial institute that works with bad credit borrowers while also offering traditional home loans. That way, you can repair your credit while holding the costlier loan and refinance under the same lender after your credit score improves.

Your credit score does not have to hold you back from a mortgage. You just need to make sure it’s not unexpectedly costing you extra.

What Will Your Credit Score Cost You?

When applying for a home loan, your decided interest rate is mainly calculated based on your credit score. So if you were to apply for a mortgage right now, what would this mean to you?

It all depends on where you live …

Let’s use Manhattan, New York as an example, seeing as how even a one-bedroom will easily set you back $400,000 or more.

Say you are buying an apartment for $400,000 and you give the minimum of 10 percent down. This leaves you with a $360,000 principal to finance through a mortgage provider. Let’s say the mortgage will run for 30 years and it’s a fixed-rate loan.

Below shows your total interest cost for the lifetime of the mortgage. These calculations come from MyFICO.com’s Loan Savings Calculator, which estimates your interest rate based on your FICO score range.

  • 620 to 639 FICO score: $319,418 total interest (4.793% APR)
  • 640 to 659 FICO score: $277,706 total interest (4.252% APR)
  • 660 to 679 FICO score: $245,727 total interest (3.825% APR)
  • 680 to 699 FICO score: $230,167 total interest (3.613% APR)
  • 700 to 759 FICO score: $217,414 total interest (3.437% APR)
  • 760 to 850 FICO score: $201,683 total interest (3.217% APR)

To put it into context, you are looking at saving $117,735 over 30 years by financing with perfect credit instead of below-average credit. From another perspective: your monthly payment will be about $327 less!

How to Make Your Mortgage Cost Less

There are some tricks that can help you qualify for a more affordable mortgage. Four simple ways to do this include:

1. Refinance Your Mortgage After You Buy

Your mortgage payments go through on time for half a decade, and suddenly the huge debt does not keep your credit score suppressed. The result could be seeing your credit rating go up by a considerable amount since when you first qualified for the mortgage. If this is the case, you could refinance the mortgage to lower your interest rate and ultimately make the rest of the mortgage term cheaper for you.

2. Rent-to-Own the Place First

If you are repairing your credit, but you want your new home now, you could try to buy through a rent-to-own agreement. You will be able to guarantee the seller gets the asking price as long as you follow through with financing at the end of the term. While the rent-to-own contract will set you back a little in equity, the much lower interest rate will create much more savings.

3. Wait a Little Before Buying

While this is not the most exciting solution, sometimes it makes a lot of sense. Say you have a bad debt in collections from six years ago. If that’s the case, waiting roughly a year will cause the negative item to leave your credit report and thus it will not hold back your FICO score. The end result could be a huge boost in your credit rating, or at least enough to score you a better interest rate.

4. Purchase Under Owner Financing

If you want your new home now, but rent-to-own will not work, you might be able to purchase via owner financing. This means the seller holds the mortgage for you for so long (usually 1 to 3 years), and then you can get your mortgage and make a balloon payment to buy it out. You can use the in-between time to repair your credit and this will help you secure a good interest rate. In the meantime, you will be paying on the home under the current mortgage conditions and your bad credit status will not cost you more.

Owner financing is really the only cost-effective and sound way to approach buying a home with bad credit. Otherwise, you could be throwing well over $100,000 out the window. That’s a lot of extra money to pay, especially if you are actually eyeing a one-bedroom apartment.

To conclude, get your credit repaired before applying for a mortgage because the cost of doing so is minuscule in comparison to what you will save on interest payments.

Sources:

  • http://www.fha.com/fha_credit_requirements
  • http://www.myfico.com/crediteducation/calculators/loanrates.aspx
  • http://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-financing.asp
May 24
0

Home Equity Loans and Your Credit

By | Credit Repair, Credit Reports, Credit Scores, Home Buying, Homeowner, Mortgage, Personal Finance, Uncategorized

Home equity loans, as the name suggests, are a way for homeowners to borrow against the equity that they built up in their home. For a number of years following the 2008 financial crisis, lenders were reluctant to offer home equity loans because the value of so many homes had decreased. This lowered the equity that people had built, so it was difficult for many Americans to take advantage of them.

The good news is that as the housing market has stabilized, fewer people are at risk of defaulting on their mortgage, and home values are on the rise. In fact, the home equity market has improved for its third straight year, and, according to USA Today, the number of loans increased by about 20 percent in 2015. Consequently, lenders are more willing to extend home equity loans to customers who qualify.

The key word is “qualify.”Owning a home and having some equity doesn’t mean you automatically qualify for a home equity loan. Lenders want to be sure that you’ll be able to repay your loan. Your credit score and credit history are key indicators. So lenders won’t just look at the amount of equity that you have in your home, they’ll review your credit score and your payment history on other lines of credit, such as credit cards and your existing mortgage.

Credit Scores

While a potential home equity borrower may be current on all of his loans, he may still have a credit score that is too low for him to qualify for a home equity loan. Enlisting the help of a credit repair service such as Ovation Credit Service is a great way to improve your credit score. Our services work with credit bureaus and creditors to resolve issues that may be hurting your credit score.

A key service of credit repair services is educating you about factors that are impacting your credit score and keeping it lower than it could be. Not everyone understands how things like credit utilization and the number of open lines of credit can affect credit scores. Having an expert on your side to help navigate your credit report can help improve your score and show you which behaviors are likely to have the greatest impact on your score.

Types of Home Equity Loans

There are a lot of home equity lenders. You can go to your local bank, where you already have a relationship, or shop online for the most competitive rates. There are two main types of home equity loans:

  • Traditional Home Equity Loans are a lump sum amount paid to you when you’re approved. These are best for repaying credit card debt, consolidating other loans, paying for your kids’ college tuition, or splurging on a big-ticket purchase such as a car. The funds are given to you, and you make payments based on how much you borrowed.
  • Home Equity Lines of Credit (HELOC) are a great way to borrow against the equity in your home and keep some funds in reserve. If you’re renovating a room in your house or want to take a nice vacation, you can tap into some of the equity available to you. You only pay back the amount of equity from the line that you used, but you have other funds available if you decide to expand the scope of your renovation project or extend your vacation.

Things to Consider

A traditional home equity loan is a great tool for borrowers who want to improve their credit score. Having some cash available to consolidate high-interest credit cards—or pay them off entirely—is a good way to manage your credit. A credit repair service can recommend which lines of credit you should pay off first to have the greatest impact on improving your credit score.

May 14
0

Getting Your Credit Score in Order Before Buying a Home Can Save You Headaches and Money

By | Ask a Credit Expert, Credit Scores, Mortgage

Buying a home is a major life event and one that can bring great joy, but it can also create its share of anxiety. Preparation should begin long before the first visit to an open house. Your credit score is one of the most important things to look at before trying to buy a home. That one three-digit number will be a factor in pretty much every facet of the process. Consider the following:

  • Loan qualifications—Your credit score is the first number that lenders consider when they review your loan application.
  • Lenders—While you may want to borrow from the bank that you’ve had your checking account with for the last five years, not all lenders work with all borrowers. Once again, your credit score will be a determining factor in whether you’ll be able to work with a traditional bank or if you’ll have to turn to a specialty lender.
  • Down payment—This is often the scariest number for home buyers because they will have to put down thousands of dollars to buy a house. Your credit score can impact the minimum down payment that lenders require. For example, Federal Housing Administration-backed loans only require a 3.5 percent down payment if your credit score is above 580. If your credit score is below this magic number, you may need to put down 10 percent or more.
  • Interest rate—Lenders determine the interest rate that you’ll pay based on your credit score and other factors. A $200,000 mortgage at 5 percent will result in a payment of more than $100 a month compared to a loan at 4 percent. That equates to more than $6,000 in extra interest over the first five years of a mortgage.

Why is a credit score so important?

Lenders use your credit score as a tool to measure risk. The score is based on a number of factors, including past payment history, the outstanding amount on existing loans, and any negative marks against you. Lenders prefer high credit scores because they see the borrower as less of a default risk.

What is a good credit score for buying a home?

BankRate says that a credit score of 740 or more will help home buyers get the best interest rates. The FHA has programs that offer low down payment options for borrowers who have a score of 580 or more. The credit score range to qualify for a mortgage varies significantly, and even if you meet the minimum, it’s recommended that you have the highest credit score possible.

This could be where a credit repair service can help. Even if you have a score that might qualify you for some loans, improving your credit score will help you get better interest rates, avoid having to pay mortgage insurance, and save you money over the duration of your mortgage.

Using a credit repair service can improve your credit score in a number of ways. First, removing incorrect information can help improve a credit score. According to Ovation Credit Services, 79 percent of credit reports contain errors and 54 percent have outdated information. Ovation provides tools for customers to dispute credit report errors and help them improve their credit score.

There’s no doubt that having a healthy credit score can be important in the home buying process. The higher your credit score, the better chance you have of buying the home of your dreams with the best possible terms. You’ll also have multiple lenders that want your business instead of having to work with lenders that prey on customers who have poor credit scores.

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