Increasing a Credit Score

Credit scores have a dramatic effect on a borrowers ability to get the best terms for many types of financing including a home mortgage, a car loan, credit cards, cell phone carriers, utility companies run credit checks, and even some employers rely on credit to screen employees.  To be in in the mortgage industry and the insurance industry, you have to have your credit checked often by regulators. This is how important credit is to the world we live in today

If your credit score does not meet minimum standards you may not even have the ability to get a home mortgage at all.

There are a number of factors that the credit bureaus use to calculate your credit score. One of the most important factors they use is your past payment history which generally accounts for 35% of your credit score. In the mortgage article how to improve a credit score, all the various ways you can achieve and maintain a great credit score are discussed. If you pay attention to these credit scoring factors you will be well on your way to achieving an exceptional credit score.

When it comes to your home there are ways to improve a credit score with specific home finance tips.

Pay Your Bills On Time.

It goes without saying that paying your bills on time is a must if you want to have excellent credit. Above all else you want to make absolutely certain you pay your home mortgage when it is due. As mentioned above, past credit history is a critical factor on how you be viewed by a lender when applying for financing.

There is nothing that will hit your credit harder than a missed payment. Credit scoring agencies will look at a missed mortgage payment in a far more negative light than a missed car or credit card payment. If at all possible you should always consider making your mortgage payment before other bill that are due.

Check Your Credit Report For Errors often

While working in the mortgage industry for many years, I have had the opportunity to see 1st hand that it is easy for credit bureaus to make mistakes on a persons credit report. A credit report error can cost a borrower a lot of money? Any mistake on your report will lower your credit score in negative manner. This makes it vital that you periodically check your credit report for errors but certainly before you try to refinance a mortgage.

If you find an error in your credit report you should make certain that you get it corrected right away! Here are the necessary steps you need to take in order to fix credit report errors. You will want to make certain the errors are corrected before applying for financing.

Postpone Financing Until Your Credit Is In Order

Depending on whether you have discovered a credit report error or had a legitimate blemish on your record in the past could be a reason for postponing a refinance. Removing a credit report error can take a little bit of time but could be worth it in the long run if you factor the difference in rate you will pay without the correction. Unless mortgage rates are climbing dramatically and locking a mortgage rate makes more fiscal sense, you will want to get your financial house in order 1st.

Sometimes there can be unpaid bills that took place a long time ago that come back to haunt you especially if they were turned over to a collection agency. Something as small as a $50 unpaid phone bill could come back to bite you in the form of a higher interest rate on your loan. Just a 1/4 point difference in rate could translate into thousands of dollars over the life of the loan. The good news is that as time goes by the blemish becomes less important in scoring factors.

Paying Off 2nd Mortgages and Equity Lines of Credit

On the surface it may seem like paying off a 2nd mortgage or home equity line of credit (HELOC) is a good idea but it may not be, at least in terms of a credit score going forward. Your credit utilization or what you owe your creditors makes up 30% of the scoring factor that credit companies use to determine your score.

The closing of existing revolving accounts will typically adversely affect the ratio and therefore have a negative impact on your FICO score. You may want to consider lowering the balance but not paying off the loan in one shot.

Pay Your Property Taxes, Income Taxes and Utility Bills On Time

If you find that you are strapped for cash there are certain bills that should always be paid 1st such as a mortgage, car loan and credit card bills. It makes sense to pay these bills 1st because they will have the greatest impact on your credit score. This however, does not make paying your property tax and utility bills on time unimportant.

The good news is that it will usually take a serious delinquency before missed payments are reported and negatively impact your credit score. Most of the time late payments on your property tax bill  or on income taxes won’t effect you for until you are seriously past due, but once they go on your credit, they last for 10 years and have a very bad negative impact on your credit report.  So you cannot neglect these items and you must be proactive to take care of them.

Always keep in mind how you manage your home finances affects your ability to either purchase a home or to refinance and get the best mortgage rates by having your credit in order.

You can contact Ben Gerritsen at: 801-814-2364
https://wedohomeloansforyou.com

FHA Loans V.S a Conventional Loan

You’ve heard the term FHA but probably don’t really understand how vital this loan is in today’s real estate market. Just what makes FHA so important?

FHA is the single most versatile loan program available and without it, literally hundreds of thousands of potential borrowers would not be able to finance a home.

Compared to all other home loan options, FHA is the second most utilized loan and is, by far, the most flexible in many areas such as credit, down payment, reserves after closing, etc. In many cases FHA is not only a great loan option but it’s the ONLY loan option available.

Take a closer look at FHA’s flexibility- down payment for example; FHA only requires 3.5% down payment while a conventional loan requires a minimum of 5% down.

On the surface it doesn’t seem like much but let’s put this in perspective. Given a purchase price of $275,000 FHA would require $4,125 less down than that of a conventional loan (if you’re not quite convinced that is meaningful then just think how long it would take you to save another $4,000).

How about credit scores? This is a big topic these days and rightfully so. If your credit score is 680 (and this is not considered “good” by today’s mortgage standards) and you were applying for a conventional loan with only minimal down payment then your interest rate could be as much as .375% higher than that of a FHA loan. Why? Because conventional loans charge higher rates for lower credit scores. FHA does not. We examined both options with a recent client and the payment on the FHA loan was $57 per month lower. Over 30 years that $57 per month adds up to over $20,000… now that’s real money!

One obstacle that borrowers can be challenged on is the source of their down payment. This can be critical to your loan approval.
A conventional loan requires the borrower to verify that they have at least 5% of their own funds while FHA does not. FHA allows for the entire down payment to be a gift.

A great example of this is a client who just closed on her home. She is a recently divorced mother of two and wanted to buy a home for her and her children. After selling the marital home she had very little equity left over. Fortunately, her parents provided her with a gift for the down payment and she was able to negotiate the seller to pay her closing costs. Because she went through FHA she was able to buy this home with no money of her own. On a conventional loan she would not have been able to purchase a home at this time because she lacked the 5% of her own money. Please don’t misunderstand the intent of this guideline. A financially healthy borrower should have some form of savings but under FHA rules it is not a requirement.

One other advantage of FHA is in regards to mortgage insurance. This is insurance that is required by bank when you’re putting less than 20% down payment.

FHA has their own insurance built into the approval process but this is not the same with a conventional loan. On a conventional loan there is an entirely separate approval process for private mortgage insurance (PMI) and often these guidelines can be more rigid than the bank’s. So keep in mind that just because your bank approves your mortgage doesn’t mean you’ll be able to get that loan if you don’t meet the criteria of the PMI company. Under FHA, one set of guidelines and that’s it.

Regarding private mortgage insurance, a great example of FHA’s flexibility is when you’re purchasing a condominium. If you’re buying a condominium with a credit score under 680 and you are only putting 5% down then you won’t be able to obtain private mortgage insurance. The private mortgage insurance guidelines prohibit this at this time and, therefore, you won’t get the loan regardless of whether your bank approves you! This is not the case with FHA. FHA does not differentiate with separate guidelines. You either qualify for a FHA loan or you don’t. There is no other criterion that has to be met.

The benefits of FHA’s flexibility far outweigh any disadvantages. In recent years there has been some confusion in the real estate market about FHA loans and much apprehension among a few real estate agents who believe that FHA is a harder loan to get approved. They feel that FHA is too rigid with appraisals with respect to the condition of the properties. There was some truth to that statement in that several years ago FHA was more restrictive on appraisals but that has since eased significantly. Today, FHA appraisals are no more restrictive than that of a conventional appraisal.

It’s estimated that there are approximately 14 million potential first time buyers between 25 and 37 years old who are ready to purchase a home. You have to imagine that many of these people will qualify for a conventional loan… but many won’t.

They’ll have circumstances that prevent them from being approved or have financial profiles that make FHA a much better financing alternative. With that said, FHA definitely has its place in this real estate market and is certainly here to stay.

If you are looking for a mortgage and want to work with someone that is very knowledgeable, has great service skills and competitive rates, I would give Ben a call.

FHA 203-K Rehab Loans

How many homes do you know of that are ready to move in and live in it on day one.  How many good deals and great deals are there that need some form of rehab or remodeling to the property.  More than ever before over the past 20 years.

The landscape of the housing market all over the country has changed drastically over the last few years. Foreclosures and short sales have become the norm not the exception. Many of these distressed properties that have been entering the market are not in the best of shape.

Some of them need a major overhaul! They have however, created opportunities for buyers who are looking to invest the time and effort to fix them up either to turn around and resell them or to live in as a permanent residence.

As such, the 203K rehabilitation loan is a terrific mortgage vehicle for those buyers who would like to invest in repairs and improvements in a property. The Federal Housing Administration (FHA) which is a part of the Department of Housing and Urban Development (HUD) is the party in charge of administering various single family mortgage insurance programs.

The 203K is the primary program for the repair and rehabilitation for single family properties.
The 203K rehabilitation loan program is run through FHA approved lenders which submit applications from buyers to have the property appraised and have the buyers credit approved just like in a conventional loan process. The difference is that these lenders fund the mortgage loans and the Department of Housing and Urban Development insures them. HUD does not make direct loans to borrowers.

If you have not had the pleasure of your buyer’s financing with a 203(k) renovation loan then just wait, because soon enough you will. With all of the distressed sales and foreclosure properties abundant, it’s likely that soon you’ll run into that home that needs either a little TLC or some major renovations. Either way, the 203(k) loan is a great financing tool to help a buyer restore a home.

The 203(k) program was originally designed by FHA to help with neighborhood revitalization and is a fantastic loan opportunity to buy a home and put in a new kitchen, bathrooms, update electrical or plumbing… almost any major and minor improvement you want. There is really nothing else available that allows for the flexibility that this program offers. It’s a simple program opens the doors for the average home buyer to receive money to improve a home.

I love this loan for a few reasons: First, the down payment requirements are minimal (only 3.5% of the acquisition cost which is the purchase price plus the renovation costs). What bank do you know of that will give a construction loan to someone putting less than 10% to 20% down? None! And the second reason I love this program is credit. You know that credit score tightening has been big show stopper for many looking to buy a home, let alone buy and finance renovations.

A low FICO score can prevent a home purchase, especially a home purchase with less than 20% down as most mortgage insurance companies have minimum FICO score (some even have their minimum at 680!). Most lenders will usually allow a score of no less than 640 for the 203(k) but some may still allow a score as low as 620.

I also like the fact that with 203(k) you have two options – the Streamlined K as some call it, and the Full K. The real difference between the two are that Simple K allows only up to $35,000 for renovations and have a caveat that improvements cannot be structural in nature. The Full K allows for any permanent improvement and no limit as to the amount as long as the loan does not exceed the maximum loan amount for that county determined by FHA.

There are a few other differences in paperwork between the two types of 203(k) loans but the premise is the same… 203(k) helps move inventory! If you’re sitting on listings or have buyers looking for a fixer upper then the 203(k) is definitely the way to go!
 
For more information on FHA 203-K loans, see also:
203-K Rehab Loans
Q & A's
FHA 203K Loan - Eligible Property
FHA 203-K Loan Streamline Refinance
FHA 203-K Eligible Improvements that can be done