Tag Archives: credit scores

Money Monday: FICO 9

What You Need To Know About The Latest Credit Score

credit score“Earlier this year the Fair Isaac Corporation released a new version of its credit scoring formula to consumers. Called FICO 9, it makes some significant changes to how your credit score is calculated.”

What’s changed?

  1. Medical collections
  2. Paid collections
  3. Rent payments

Read more about FICO 9 in this Forbes article: “FICO 9: What You Need To Know About The Latest Credit Score”.

Money Monday: Myths about credit score

Don’t fall for these myths about your credit score!

  1. Your credit score drops whenever you look at it
  2. You need to close credit cards that you don’t use
  3. Paying off that negative account takes it off your record
  4. Cosigning on a loan doesn’t mean you’re responsible to pay it
  5. Making payments on time show up on your credit score
  6. Your payment behavior shows up on your report

6 Myths about Credit Scores

This infographic is from CAR.org.

What does FICO have to do with my Home Loan?

ficoYour FICO score is the yardstick by which most lenders measure your credit worthiness. The major credit bureaus keep track of loans that you have taken out in the past and how well you managed this debt. A high FICO score indicates that you have been responsible with the credit extended to you and will reflect positively on applications that you submit, while a lower score indicates that you have had credit issues in the past. Continue reading

Lenders loosening requirements for home buyers

lending ratesOnline mortgage originator LendingTree’s monthly Credit Accessibility Report shows the average accessibility score for U.S. borrowers rose from 103 to 106 between July and August, indicating that borrowers had easier access to mortgage credit.

The Credit Accessibility score is benchmarked at 100, using data from the full year of 2012, which is where it stood in June.

In what might be good news for Realtors but bad news for lenders, purchase loans will soon account for a bigger piece of the mortgage loan origination pie than refinancings, a recent report by Ellie Mae suggests. As mortgage rates rise and the refi boom cools, lenders may get more aggressive about competing for business from homebuyers, loosening their underwriting standards in the process.

As home prices rise, refinance activity slows and government programs change, potential borrowers are, in fact, finding it easier to gain access to credit, LendingTree CEO Doug Lebda said in a statement. That’s because lenders are easing up on down payment and credit score requirements, while still adhering to conforming loan guidelines.

As private securitizations of mortgages not backed by the government start to bounce back, “borrowers who didn’t qualify in the past may now have that opportunity,” Lebda said.

Foreclosures fall in San Diego County

Foreclosures plummet in San Diego County

“More San Diego County homeowners turned to short sales to avert foreclosure in the second quarter as the local market continued to gain momentum. Those were key factors that pushed down distress to lower-than-normal levels, based on a report from DataQuick on Monday.

The number of San Diegans who received default notices, the first step in the formal foreclosure process, fell 1.4 percent in the second quarter of this year (April to June) to 4,099 compared to the same period in 2011. This marks the lowest level of mortgage defaults seen in a single quarter in more than five years. In the first quarter of 2007 3,931 default notices were filed.

Foreclosure levels also have plunged. San Diego County recorded 1,391 in the second quarter, down 25.3 percent from the previous quarter and down nearly 50 percent from a year ago. The past quarter was the lowest one for foreclosures since the first quarter of 2007, when the county recorded 1,182 trustee deeds, which signal a foreclosure.

“Obviously the economy has been on the mend, however slowly,” said DataQuick President John Walsh. “But because housing is widely seen by economists as the biggest drag on growth, some interesting alternatives to the foreclosure process are being discussed, such as the use of eminent domain to buy and restructure mortgages. Needless to say, we’re all watching closely.”

Walsh is referring to a controversial plan from San Bernardino County and its two biggest cities — Ontario and Fontana — to seize mortgages that are underwater through eminent domain. The effort is meant to curb future foreclosures.

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5 myths about credit scores and mortgages

Remember that department-store card you signed up for to get an instant discount? Or the medical bill you didn’t pay on time?

What seem like minor moves could drive down your credit score, which factors in big time when you’re trying to finance your future home. Lenders look at how much you make, what you own and how much you’re able to put down — but your credit score also is a major factor.

“It’s four basic factors: income, assets, credit and the property itself,” said Chad Baker, a loan officer at Prime Lending, which has offices in the UTC area and Mission Valley.

“If anything is wrong with the four, then you will have problems,” he added. “If you need a higher down payment, then you can offset it with a gift from a friend or family member. But if you’ve exhausted everything (to fix your credit,) there’s nothing you can do. So, it’s extremely important.”

The good news: Certain credit-score issues can be fixed on your own at no cost as long as you understand a few financial basics — from paying bills on time to requesting your free credit reports. Those simple pointers could help you not only qualify for a mortgage but also save you up to thousands of dollars in the long run.

They can also make or break your chances in today’s tougher lending environment, which generally requires a bigger down payment and more proof of income than during the last housing boom.

A recent study shows the average credit score for someone who successfully closed any kind of mortgage in April was 745 (with 20 percent down). The findings, based on 20 percent of loan originations in the country, are from Ellie Mae, which provides services to the mortgage industry.

The U.S. average is 692, and California’s is 691, according to FICO, which rates consumers’ credit histories on a scale of 300 to 850. So, if you don’t have the 745 score cited in the Ellie Mae study, does that mean your chances of getting a mortgage are nil? No, mortgage insiders say. U-T San Diego busts that credit myth and others in this how-to guide:

Myth: Lenders are looking for one magic number.

Fact: The score range you should shoot for depends on what kind of mortgage you want…

Myth: There’s nothing I can do to change my credit score.

Fact: You have more control than you think. Changes all start with knowing what’s in your credit report…

Myth: Even if I do find an error in my credit report, it will take forever to correct.

Fact: You can get a rapid rescore done with the help of the lender…

Myth: I’ve never been late on any payment, so it’s a waste of time to check my score.

Fact: Errors in credit reports happen all the time…

Myth: The definitive source to get my free credit report is freecreditreport.com.

Fact: It’s actually annualcreditreport.com

Read U~T San Diego’s article in full here: “5 myths about credit scores and mortgages”.

Renting can help you later

A good rental history can help borrowers

First-time home buyers planning to purchase a house later this year may have a better chance of qualifying for a mortgage if they have had a history of paying their rent on time.

  • Last year, credit-reporting agency Experian added a section to millions of credit reports showing on-time rent payments and raised the credit scores of many people.  The company said that this year it would add in negative marks, including mentions of bounced checks or of tenants’ leaving before a lease was up.
  • Incorporating rental payments into credit scores could affect millions of people who have not established credit histories through credit cards, student loan repayments, and other credit sources.
  • Almost half of consumers considered “high-risk” experienced an increase of 100 points or more after their positive rental history was added, according to Experian’s rent bureau. Those with average or higher scores did not experience major movement.
  • Although it is still too early to show the effects of the new credit report, which began in December, the changes are intended to allow lenders and consumers to have greater transparency, according to Corelogic.
  • People who have lost their homes to foreclosure and are now leasing may be able to rebuild their credit histories by being responsible renters.
  • However, consumer groups and advocates are skeptical, noting that reports are sometimes riddled with mistakes and some landlord-tenant disputes may be difficult to capture in a credit report. Rent may not have been paid, for example, because the furnace was left unrepaired for months.

Read the article, from which these points were taken, from the New York Times.

Six must-haves for mortgage approval

Interest rates are hovering around historical lows, and low interest rates increase affordability, making it easier for buyers to qualify. Yet stories of buyers waiting months to gain loan approval and home purchase transactions not closing on time due to lender’s strict underwriting are all too common.

Some buyers are turned down for illogical reasons. For instance, if you have investments — even if they’re performing well — an underwriter might deny the mortgage because your portfolio doesn’t fall into the underwriter’s risk assessment model.
checklist
One couple was turned down because the husband had worked at his current job for less than a year — even though he was making more money at the new job than he was before.

These buyers were well-qualified. The wife had worked several years for one employer and was able to qualify for the loan on her own. So, the transaction closed, although two months late.

Generally, it’s more difficult to qualify now than it was a year ago. Most conventional lenders require a 20-25 percent down payment. For the lowest interest rates, your credit scores need to be in the 700 range. You need to have verifiable income and cash reserves in addition to your down payment and closing costs.

You could run into underwriting problems if you’re self-employed, as W-2 income is much easier to verify. Other hurdles are lapses in employment and owning a lot of property. Some lenders won’t lend to buyers who have more than three or four residential properties.

If you’re buying a new home before selling your current home, you’ll need to have 30 percent equity in your current home. This needs to be verified by the lender’s appraiser. Also, the lender will want to see a copy of the cashed check from the tenant for the first month’s rent to verify rental income if needed to qualify.

HOUSE HUNTING TIP: As soon as you’re serious about buying a home, find the best mortgage broker or loan agent you can to assist you. Don’t make your selection based on interest rates alone. A good track record counts for a lot.

Closing the deal should be your primary goal. If you have to pay 0.25 percent more to assure your transaction closes on time and that you’re not turned down at the last minute, it’s worth it.

Be candid with your loan professional about anything in your financial picture that might impact loan qualification. A good loan agent or broker will be able to assess your financial situation and anticipate what you’ll need to do to satisfy the underwriter.

Be aware that appraisal issues can impact your loan approval. For example, if a previous owner added square footage without a building permit, the additional square footage probably won’t be included as livable square feet.

If the appraisal comes in for less than the purchase price, the lender might not lend you enough to close the deal. Include an appraisal contingency in your contract.

There are more jumbo financing options available now. Adjustable-rate mortgages that are fixed for 10 years and then revert to an adjustable have a starting rate about 0.25 percent less than a 30-year fixed jumbo. A five-year fixed starts about 0.5 percent to 0.75 percent lower, but is riskier.

THE CLOSING: Because of the risk factor, the lender may want you to have a large cash reserve. Your retirement account counts toward this.

Dian Hymer is a real estate broker with more than 30 years’ experience and is a nationally syndicated real estate columnist and author.