Posts Tagged ‘Credit history’

Credit Reports – What You Need To Know

Credit reports and the “secret formula” for calculating one’s credit score remains a mystery for most people. When a lender “runs your credit,” that means the bank is getting your credit information from one of three independent national credit reporting bureaus–Equifax, Experian, and TransUnion.

what is my fico scoreCredit reporting bureaus collect information about your credit card use, rental history, loan history, including vehicle and student loans. They then analyze the results and tabulate them into credit scores, using software created by the Fair Isaac Corporation. Your lender can purchase the reports, as the FICO scores to serve as summaries of your credit history. Your FICO score is the middle of the 3 scores.

Each of these credit reporting bureaus collects and analyzes its own data which results in 3 different scores. The bureaus don’t share information between each other, so if you want a true picture of your credit, you have to check with all three bureaus.

If you have a mistake on your credit report from one bureau, the same problem may not appear on the other bureaus’ reports. You have to get the negative item removed by sending a copy of your proof, full payment, release of lien, or other evidence.

Getting one of these items removed can take as long as 30 days, which will delay your loan. That’s why it’s best to clear these things up before the lender brings them to your attention. If your lender sees something negative enough to decline the loan, they will tell you to fix it. Lets say you may have had a dispute with a contractor that resulted in a lien on your home. It doesn’t matter who was right, you’ll have to pay the debtor, obtain a release of lien or payment in full receipt, whichever applies.

This evidence should go into the loan file. Make sure to keep multiple copies of the lien release or payment in full. Why? Because that lien can always reappear on another credit report. Property liens from the IRS are particularly hard to eradicate because the proof of payment has to come from the IRS, along with the county where you owned the property, which must record the release of lien.

You may see a problem in your credit report that’s over 10 years old. An account in collections can stay on your credit report for much longer than 7 years; which is the length of time it takes for bad accounts to drop off your credit record. When the debtor finally gives up trying to collect, that’s when the 7 years begins.

FICO credit scores can be in the range of 300 to 850. To get the best mortgage rate, your score must be as high as possible. Today, most lenders will give you their best rates if your credit scores are 750 or higher.

Factors that make your FICO score and credit historyYou can raise your credit scores by managing your credit the way that generates the highest scores. About one-third of a FICO score is your payment history (paying on-time). Another third is based on how much of your available credit-line you use. You can improve both areas by paying down your debts down as quickly as you can. If you are only making the minimum payment on your accounts, you’re living beyond your means and thus lowering your credit score. Don’t max out any credit card.

You can also improve your scores if you pay debts off early and avoid late payments. Data in your credit report includes the loan terms, payment history — on time, early or late payments, unpaid monthly balance rollovers, payment amounts, minimum payment history, income-to-debt ratios, and percentage use of available credit. Always pay off those credit cards that charge the highest interest first. Try not to incur new debt.

Managing your debts well does more than earn you a great mortgage rate. It ensures lenders that you are more likely to buy wisely within your affordability range. And that will make any lender view you as a good risk.

You’re entitled to a free copy of your credit reports once/year. You can contact all 3 credit bureaus or visit AnnualCreditReport.com.

 

For more information on this topic:

619.384.2248
Ryan@RyanYourRealtor.com
Visit my Website: http://ryanyourrealtor.com

Direct Lender or Mortgage Broker–What’s the Difference??

Suppose you were in the market to buy a new car. Would you go to a single dealership and expect to find the perfect car at the perfect price simply because you’re buying directly from the dealer? Of course not. It is very similar with mortgages and mortgage lenders.

There are countless mortgage programs based on countless ‘guidelines’ for determining acceptance. The variety of programs and rates varies greatly from lender to lender. Because of this, the odds are very much stacked against you finding the ‘perfect’ mortgage from a single direct lender. Direct Lenders have one group of programs. That’s it.
direct lender mortgage brokerBut why are direct lenders in favor right now over mortgage brokers and mortgage bankers?  One word-SPEED. Since direct lenders are using their own money and their own guidelines (most mortgage brokers will need to go through two sets of guidelines-the bank’s and the investor’s), they can close loans very quickly. They normally have their underwriters in-house. Closing loans quickly (or at least on time) is huge, especially on short sales. When a lender(s) approves a short sale, it has an expiration date. If the transaction doesn’t close by that date, an extension has to be requested (which isn’t always easy to get). That can lead to problems with appraisals, credit reports, and financial statements being outdated.

The advantage of a mortgage broker is that they can choose from the thousands of lenders to select the program that offers the lowest rate for your specific loan. Brokers will counsel borrowers on the loan options available from these different lenders and find the best “fit.” Some people fear higher costs by using a broker as opposed to a Direct Lender. This is sometimes the case. What must be kept in mind, though, is that Direct Lenders make their money off of the interest you pay on the loan– over time,  the amount of interest will far surpass your closing costs. In other words, closing costs must be viewed in relation to your interest rate. In fact, interest rates are more important than closing costs (especially since there are laws in place that prevent excessive loan charges). So sure, sometimes a direct lender offers lower closing costs. The interest rate, however, is rarely lower and that is what will affect you the most over the coming years.

My best piece of advice? Shop around for a loan before settling on one lender.

 

For more information on this topic:

619.384.2248
RyanYourRealtor@gmail.com
Visit my Website: http://ryanyourrealtor.com

Should You Refinance Your Home?

should you refinance your homeWith current interest rates still historically low (4.29% as of the writing of this article), you may want to refinance your home to a lower rate. Here are five questions you should answer before you take the leap:

1. How long do you plan to stay in the home?

It makes a big difference in recouping the cost of refinancing a home loan. If you don’t plan to own the home for at least 3-5 years or more after refinancing, it might not make sense to incur the costs of refinancing.

2. What are the closing or settlement costs for refinancing?

You should expect to pay about the same amount as when you purchased. Expenses will include a new title policy or abstract, a new appraisal, and lender’s fees.

Lenders normally charge an origination fee or a “discount fee”. If it’s a “no-cost” refinance, there’s really no such thing – the fee will actually be rolled into a higher interest rate. Count on your closing costs to be similar to what you paid when you originated your first loan. In other words, it’s a new loan, with all-new fees.

3. What percentage rate are you currently paying?

Mortgage lenders used to only advise refinancing only if you could save two percentage points on the loan. That’s so you can get your closing costs back if you need to sell a year or more later, assuming your home doesn’t go down in value.

But you can refinance by getting as little as 1/2 percent lower than your current mortgage interest rate and still be able to sell within a reasonable time – 3 years or so. What you need to do is figure how long it will take you to pay back your closing costs before selling your home.

You have a $200,000 mortgage, 30 yr. fixed rate, 6% interest, with a monthly payment of $1199 in principal and interest or PITI. Assuming $2,000 in closing costs, you refinance for another 30 years.

At 2 points lower, or 4% interest, your new PITI (principal and interest) is $ 954.83 With a monthly savings of $244.17, it would take you just over 8 months to pay back the cost of the refinance.

At 1/2 % of a point lower, or 5.5% interest, your PITI is $ 1135.58. With a monthly savings of about $64, it would take you a little over 31 months to break even, a good strategy if you plan to stay in your home at least 3 years.

4. What type of loan do you currently have? Do you have a hybrid adjustable rate mortgage that needs refinancing?

Many hybrid loans change from fixed rates to adjustable become adjustable after a year, three years, or five years. If you qualified for the adjustable rate loan originally, but have since increased your income or paid down your mortgage and built some equity, now may well be the time to refinance.

Interest rates have hovered near 5% or lower for well over six years, making it likely that adjustable rates have nowhere to go but up, so it may be a good time to get into a fixed rate.

5. Have your plans or circumstances changed from when you first purchased?

If you are doing well and want to accelerate your pay-off by refinancing to a 15-year term. Additional payments to principal can be voluntarily added to your 30-year fixed rate loan payment, so refinancing is only wise if you can get a much lower interest rate than your current term.

But say your intentions of paying off a 15-year note have changed, due to decreased income, family obligations or some other reason. In that case, a refinance to a 30-year term will ease your payments, but the majority of your note will be to pay interest, with little going toward your principal for several years.

Get professional advice from your mortgage banker or broker, and your financial advisor or tax preparer to help you decide if refinancing is the right answer for you now.

For more information on this topic:

619.384.2248
Ryan@RyanYourRealtor.com
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