Getting Your Credit Ready to Qualify for a Mortgage

Basic Steps to Being Credit Ready to Buy or Refinance a House Summary: Article details the things you should do several months before you get a mortgage loan. By being informed and proactive, a consumer will qualify for the best rates and terms for their mortgage. Article Body: Some people who are buying their first home or who wish to refinance their existing mortgage are so well qualified that any bank or mortgage company would give them a loan. These people tend to have excellent credit and high credit scores, job stability and more than adequate income to support the proposed mortgage payment. A quick conversation with a loan officer will let them know they are in this category. Other would-be borrowers may have a more marginal situation. This article is geared toward those people who may not be totally confident and/or who want to prepare for the future so they will be considered well qualified when it is time to purchase or refinance. There are important things a consumer can do before applying for a loan, in order to get their credit profile acceptable to mortgage lenders. It can take time to get it all done, so start now and you'll be ready for the future. Check your credit reports. Under the Fair and Accurate Credit Transactions Act, consumers can request and obtain a free credit report once every 12 months from each of the three nationwide consumer credit reporting companies (Equifax, Experian, and TransUnion). You can go to www.annualcreditreport.com to request a free copy of your credit reports. This is the only site authorized by the three major credit bureaus for the purpose of obtaining a free copy of your credit report. Each of the three reports will need to be requested separately (3 different requests). The free reports received from the site will not provide you with a credit score but it will give you a complete copy of your credit history and that's a good place to start. As you go through the process of requesting your credit reports, you may be asked if you want to get the credit scores (for a fee). While this is an option, please note that the consumer score they give you is usually different (usually higher) than the score you get when a mortgage lender obtains your credit report. This is because the model for a mortgage credit score is different than the model for a consumer credit score. The model for a mortgage credit score is designed to predict the likeliness that you will be successful in making mortgage payments. Note: if you know a mortgage loan officer, you can usually prequalify and have them obtain a 3-bureau report with credit scores. Most mortgage programs do have a minimum credit score requirement. Also, the interest rate you will be charged is often affected by your credit score (higher credit scores may get better rates). Also, for people with lower credit scores, the underwriting criteria may be stricter. Now that you have the credit report, take some time to review each entry. Do you have any late payments in the past 12 months? If so, then you must start making all payments on time. There is a very low tolerance for recent late payments. Are there any current delinquencies with past due balances or collection accounts? If you are currently delinquent on an open/active account, you must bring that account current immediately and then you need to keep paying it on time. Generally you need to have all accounts paid on time for a minimum of 12 months. If you have unpaid balances on collection accounts, medical collections, judgments or accounts that were charged to P&L or an unpaid balance from a car repossession, etc, then this can be an issue if the outstanding balances total $1000 or more. Most lenders will require these accounts to be paid in full prior to closing or you will need to prove that you have a written payment agreement and have been making payments per the terms of that agreement for a minimum of 3 months. If you do have outstanding balances on older accounts, please try and determine the actual date the account went into a collection status. These accounts are supposed to come off your credit report after seven year but often they do not because the way they are reported makes them appear to be more recent than they are. You may need to do some digging and some research to get the date(s) the account(s) went delinquent. If the creditor is not able to provide this information, you may have a case to dispute the account and get it off your report! Are there any errors? If so you will want to dispute this information too. Each credit bureau has procedures in place for making disputes. Is there any unfavorable public record information such as bankruptcy? Lenders and mortgage programs have specific guidelines on dealing with these types of issues and may require anywhere from 2 years to 7 years from the date of discharge of a bankruptcy or foreclosure before they will give another mortgage loan. Decide whether to resolve or dispute every negative item on your credit report. Even small items such as a past due account with a utility company can show up and adversely affect your credit so take care of it now. There may be some merit to using a professional credit repair company to assist you in disputing negative items on your report. Lenders are generally looking for 3 open lines of credit that have been paid on time for a minimum of 12 months. If you do not have 3 open lines of credit, then you probably should obtain additional credit. It is hard to achieve a maximum credit score with an insufficient credit profile. Next, look at the balances on your credit cards. To get the ideal credit score, the balance on a credit card should be around 30% of the credit limit. As the balance on a credit card starts to approach the credit limit, your credit score goes down. If the balance on the credit card exceeds the credit limit, then you are probably losing a lot of points! If you are unable to pay down the balances on your credit cards, consider requesting a credit limit increase. This can help separate your balance from the credit limit. If you are thinking of buying a home or refinancing in the future, then watching the balances on your credit cards is a very important step. Aim to get the balances down to at least 50% of the credit limit (or lower if you can). If you cannot get the balances that low then do the best you can; keep in mind that the balance of the cards compared to the credit limit is a big credit score driver. Other rules of thumb are do not open any new accounts and do not close any accounts. One exception, of course, is that if you do not have at least 3 open accounts then you should open new accounts so that you do have 3 accounts reporting on your credit bureau. Also, if you have more than five accounts, then closing one or more of your newer accounts is ok (leave at least five open). If you are going to close an account, it is better to close newer accounts and leave older ones open, when feasible. If you have student loans then understand that the lender will qualify you based on the minimum payment due – even if the loan is deferred. So check the student loans listed on your credit report and make sure that the information is accurate and that each loan reports a payment. If deferred loans are not showing a minimum payment due (this is the norm) then you will need to request something in writing from the student loan companies stating what the minimum due will be. This can get interesting because, for deferred student loans, the student loan company will give a statement showing what the payment will be for a regular repayment schedule. In other cases the student loan company will show a choice of different payments but there is a notation that the loan is scheduled for regular payments (which means the lender will not choose to accept the lower payments available). For some borrowers, the student loan payment(s) will affect the amount they can be qualified for and sometimes causes them to qualify for less than they want. One way that some borrowers have resolved this problem is to literally take their loan(s) out of deferment and choose the payment plan with the lowest payment then put it back in deferment. By taking these steps, the payment used by the lender to qualify you will be the lowest possible payment. Also, if your credit history is marginal, it is quite common for mortgage lenders to ask you to provide 12 months’ cancelled rent checks. If you do not pay by check, start! If you do not always pay on time, start paying on time. If you are asked to provide 12 months’ cancelled rent checks, this documentation could be the difference between your loan being approved and not being approved. Not only is the lender looking at your payment history for housing but they are looking at what you have been paying versus what your new payment will be. If you cannot document a history of paying rent, it could adversely affect your ability to get approved. While these steps may not be all inclusive – it is hard to cover every possible scenario in a short article - they will put you on the right track to qualifying for the best mortgage possible. The months before buying a home are an important time to be frugal, avoid any negative impacts on your credit report, and make efforts to improve your credit score and history. If you are purchasing or refinancing in New Hampshire or Massachusetts, contact Renee Duval at (603) 225-5626 or visit our blog at www.NHmortgages.com

Tax Credit For Veterans

Tax Credit Extended for Returning Veterans…

You may qualify for up to an $8000 tax credit if you or your spouse were on qualified official extended duty outside the United States for at least 90 days during the period beginning January 1, 2009 and ending before May 1, 2010, and were a member of the uniformed services or Foreign Service or an employee of the intelligence community (defined below) during the time period in above.

In order to qualify for the tax credit you must have an accepted offer to purchase a home by April 30, 2011 and close before July 1, 2011. Get the facts from the IRS: www.IRS.gov Search for Form 5405

 

In addition to receiving the tax credit, eligible Veterans can obtain a VA mortgage. Here's some basic info on VA mortgages:

1. No Down Payment is required.

There is no down payment needed for a VA loan. The veteran can choose to make a down payment. But it is not a requirement

2. All Closing Costs can be paid by the seller.

The VA loan has similar closing costs as other loan programs. Things like Homeowners Insurance, Title Insurance, Inspection Fees, Appraisal Fees, Escrow Fees, Taxes etc. But with a VA loan, the buyer can negotiate for the closing costs to be paid for by the seller. With a VA Loan it is possible to make no down payment and have the seller pay all your closing costs. The Veteran can get in for no money at all!

3. The VA allows up to a 50% debt ratio. Up to 50% of the Veteran's gross monthly income (including a spouse's income if they are on the loan) can go toward the new housing payment, car loan payments, student loan payments, other loan payments, minimum payments due on credit cards and other obligations like child support or alimony. This is a fairly generous guideline. The VA does test this guideline by looking at a minimum residual income for each Veteran and the more conservative guideline applies.

4. Credit scores of just 620 are acceptable. Generally if the Veteran pays his debts on time and does not have past due balances or collection accounts, they are all set. If there is collection debt on the credit report, generally it will be required to be paid off at or before closing.

5. Veterans know if they are qualified because they have a COE (Certificate of Eligibility). If you are not sure if you qualify for a VA loan, you can go to the VA's website and apply for a COE.

6. For more information on VA loans, check out our website at WWW.AmazingLoanLadies.com

Mortgage Loans for Marginal Credit

If you have less than perfect credit, you may assume that you need a large down payment to get approved, but that is not the case. If you are eligible for a VA loan or an RD (Rural Development) loan, you may be able to get approved for a loan with no down payment! Or you may be able to use an FHA loan and purchase with a down payment of just 3.5%! Or there may be other loans available through your state or local housing authorities that allow you to buy with little or no down payment. These types of loans may be better suited for home buyers with less than perfect credit. Conventional loan programs have large adjustments to the interest rate for credit scores below 740 where programs like FHA and RD don't make rate adjustments unless the score is below 660. To find the best mortgage loan for your credit profile, it is essential to select a lender who is comfortable with the less than perfect credit scenarios.

 

How to Get Approved with Marginal Credit

Most lenders today require a minimum credit score of 620. Additionally, the ideal credit report should have 3 open lines of credit and no outstanding past due or collection debt. If your credit score is below 620, your lender should be able to analyze your credit report to determine if there is anything that can be done to immediately improve your credit score. There may be simple actions you can do to get a "rapid rescore". For example, if your current balance on a credit card exceeds the credit limit, you are losing a lot of points. By paying down the balance on the account, you can increase your score. Most lenders use software programs to help them identify if your score can be raised and what you need to do to make it happen –then you can then qualify for a home loan.

Even some people with a credit score above 620 may not be eligible for a mortgage loan because their credit profile is not adequate. That is, if you have less than 3 open credit lines or if you have collection or past due accounts, you may not be able to get a loan even if your score is above 620.

When a potential homebuyer has a credit report that does not meet today's standards for a mortgage loan, they need to create a game plan to get their credit back on track. This means understanding where and what the issues are and then addressing them head on.

Each person is entitled to a free credit report through www.annualcreditreport.com . We recommend starting with that or by obtaining your credit report through a lender you are comfortable with. There is another website you can go to www.creditkarma which will also give you a reading on where your credit stands.

If you do not have 3 open lines of credit, start to improve your credit profile by obtaining one or two or three accounts so you do have 3 open lines of credit. You may also be able to get a relative to add you to one or more of their accounts as a joint user. If you go this route, make sure that the balance on the account is low (because the debt will be counted against you if you are a joint user) and make sure the payment history is excellent (because the payment history will affect your score).

If you have past due accounts, start by getting a grip on each of those accounts. Determine who the original creditor was and when the original default date was (if the default date was 7 years ago or more then you can petition to have the account taken off your credit report). If the creditor sold the debt, it might appear that the default date is more recent than it actually is. You may be required to pay these accounts off in order to obtain a mortgage so you should fully understand what each one is. You may be able to negotiate a settlement for less than the full balance if you are willing/able to pay the collection debt off. Another option is to enter into a payment agreement where you make a small monthly payment each month for a fixed # of months. In extreme cases, where the collection debt is significant, you may want to consult with a debt consolidator or an attorney (to consider bankruptcy). Each loan type has a certain tolerance for outstanding past due collection accounts; you may or may not be required to pay off your collection debt in order to qualify for a mortgage.

If you've sold your house with a short sale or had a foreclosure or bankruptcy, you will probably be facing a minimum of 3 years before you can get a mortgage. Your credit will be looked at carefully once the 3-year period elapses. Be sure that you have paid everything on time every month. Be sure you have at least 3 open credit accounts.

If you've had credit problems, please consult with a mortgage lender who can help you determine what you need to do to get on track. Develop a plan – you may be 3 months away from having acceptable credit or 3 years away – but if you have a plan you will get there.

Renee Duval, an Amazing Loan Lady, Merrimack Mortgage Company, Concord, NH NMLS#97967

NH Housing Offers 4% grant!

NH Housing will now provide a cash assistance grant equal to a maximum of 4% of the base loan amount to help borrowers defray the cost of down payment, closing costs, and prepaid escrow expenses associated with purchasing a home. Borrowers must contribute a minimum of 1% (based on purchase price) using their own funds (excluding gifts). No cash back is allowed at closing. Income, purchase price and all other NH Housing guidelines apply. There is no monthly payment on the cash assistance grant portion. If the mortgage is paid off within the first 48 months, the full amount of the grant is due. After 48 months, the full amount of the grant is forgiven. For more information, go to www.NHmortgages.com

Isn't that affordable?

I've been in the mortgage business for over 20 years and I'm pretty sure that I've never seen a time when home ownership was more affordable than it is right now. These are interesting times with a lot of distressed real estate flooding the market but these properties provide unique opportunities for home buyers. The availability of rehab money through Fannie Mae Homepath, NH Housing and FHA, means that you can get the money to replace the roof or the heating system or reside the house or remodel the kitchen or replace the flooring. You can buy a distressed property at a low price, get the money to fix it up and fix it up the way you want it. What a deal!

Just closed a loan for a nice guy who purchased a single family home for $110,000. Because the house appraised for more than the sales price, we were able to roll in the cost of some repairs that needed to be done. The borrower's only out of pocket expense for the loan was the cost of the appraisal -- $400! He even got back his $1000 deposit at closing! And the best part is his monthly payment is only $916/month including property taxes & insurance! That's way better than rent. And he owns a 3 bedroom home with a yard for his children!

There's another one where the house was listed for $129,900. The borrower offered full price with the seller paying $7000 toward closing. This resulted in the borrower needing just under $1500 total for down payment and closing costs. She was able to get $30,000 in rehab funds to freshen up the house and remodel the kitchen. Her monthly payment -- including tax & insurance - just $1,159/month.

Rates are low - House prices are low - required down payments and cash needed to close is very low (sometimes zero) - now is the time to be considering a purchase of real estate. If you believe in the old adage 'Buy low and sell high then you have to be thinking that now is the time to buy. Once the excess inventory of distressed properties is aborbed, the real estate market will be able to start to gain in value. Do your part to keep things rolling. Consider buying a distressed property today. Call me or write to find out more about the opportunities available.

Visit my website at www.NHmortgages.com for more mortgage facts and figures.

It's so easy to fall in love...

You will fall in love with Sherwood Glen as soon as you visit this awesome 55+ condominium. And now to make things sweeter, Sherwood Glen approved for FHA financing thanks to the Amazing Loan Lady, Renee Duval. FHA loans have a low down payment of only 3.5% ! FHA is not limited to first time buyers and there is no income limit for this program.

When a condo is FHA approved, it also qualifies for RD (Rural Development) financing which means you can purchase the home with no down payment! So now that Sherwood Glen is approved by FHA, buyers can also use RD financing to purchase with no down payment at all! RD does have income limits.

Now that Sherwood Glen is FHA approved, a first time buyer could purchase a home here using NH Housing which offers low, low interest rates! Currently they offer 3.5% fixed rate (1 point paid at closing). NH Housing does have income limits.

If you are over 55 and would the convenience of condominium living in an excellent location, Sherwood Glen may be the place for you!

If you live in a condominium neighborhood that is not currently approved by FHA (Federal Housing Administration) or if you are a REALTOR who has a listing in a condo that is not FHA approved, contact Renee Duval to get approval process started.

203Ks rehab loans in New Hampshire

Merrimack Mortgage Company will be offering, through NH Housing Finance Authority, an FHA rehab program. If you are considering the purchase of a home that is in need of repair, this may be the program for you. The program will allow you to receive up to $35,000 after the closing to complete repairs. With nearly 25% of all home sales being properties that are considered distressed, this is an awesome opportunity!

The benefit of this combination is that a borrower can now purchase a home and receive rehab funds with an initial investment of as little as 1.5% of the acquisition cost of the property (acquisition cost is the sales price + the requested rehab funds). In order for this to occur, the borrower will take advantage of a 2% grant available through the state and use that money for down payment (the required down payment for FHA is 3.5% but the 2% grant can be used for down payment leaving the borrower to need only 1.5%) and the borrower needs to negotiate for the seller to pay all of his/her/their closing costs. Another benefit is that NH Housing offers a lower interest rate than the regular FHA program. Please contact us at AmazingLoans@NHmortgages.com for more details. We would be happy to forward full program specifications.

NH Housing does have income and sales price limits and is restricted to first time buyers in most communities (but not all). These limits are posted on our website for your review (look under programs and then under NH Housing).

For buyers who are not eligible for NH Housing, FHA does not have income limits nor is it limited to first time buyers.

WWW.AmazingLoanLadies.com