Coaching and teaching - many through the mortgage process and others on the field

Tag: credit scores

New Regulatory Changes Help More Borrowers Qualify

I have some good news for those looking to get a mortgage in the near future — as 20% of U.S. consumers could see their credit score increase this fall.

Credit Changes

The nation’s three major credit rating agencies, Equifax, TransUnion, and Experian, will drop tax liens and civil judgments from some consumers’ profiles if the information isn’t complete.

Because of the combination of these two dramatic changes, many potential borrowers that did not qualify for a home loan might now be eligible under these new regulations.

These credit bureaus will also be restricted from including medical debt collections. If the debt isn’t at least six-months old or if the medical debt was eventually paid by insurance, it can’t be listed.

The reason is that medical debts, unlike that of credit charges, are unplanned and doctors and hospitals have no standard formula for when they send unpaid debts to collection.

Debt-to-Income Changes

In addition to the FICO changes, mortgage titans Fannie Mae and Freddie Mac are allowing borrowers to have higher levels of debt and still qualify for a home loan. Both are raising their debt-to-income ratio limit to 50 percent of pretax income from 45 percent. That is designed to help those with high levels of student debt.

This move by the mortgage leaders will dramatically increase the number of people who will now be able to qualify for a home loan. Most industry experts agree that this is a welcomed and much needed change for millennials and first-time homebuyers.

If you have been considering a home purchase or refinance, now is a great time to take a look at it.

Contact me to find out if these changes might benefit you or someone you know!

Improve Your FICO Score by 100 Points Quickly

How To Increase Your Credit Score Fast

You can raise your FICO and reduce what you pay for a mortgage, automobiles, and credit cards. And it’s not that hard to do.

Gina Pogol at The Mortgage Reports has put together a step-by-step guide to get your credit score up and start paying less for everything you finance. Below is a sampling from her article that you might find very useful….

How Much Can You Save?

Per Pogol and MyFICO.com, improving your score by 100 points can save you thousands per year – although that’s not enough to make you rich overnight, it certainly is enough to improve your life.

The average home purchase mortgage, according to the Mortgage Bankers Association (MBA), was $324,844 in May 2017.

MyFICO says that you’d pay 5.15 percent with a 620 credit score, and 3.78 percent with a 720 credit score.

The difference in payment for an average loan amount and a 30-year fixed mortgage is $264 a month. And that’s really just the start.

The First Step – Assessment

Your first task, when raising your FICO, is to see what you’re up against.

You can get a copy of your credit report from all three major bureaus for free at the government’s site, annualcreditreport.com. Pay the small charge to obtain your FICO scores as well.

Your “representative” score is the middle score of the three. So if your scores are 598, 602 and 623, your representative score is 602. Note that there are many variations on the FICO score, and not every lender uses the same one.

What’s The Reason For Your Low Scores?

Your plan of action depends on the reasons for your low FICO score.

If the cause is inaccurate information, you can clean up your report yourself by contacting all three credit bureaus, Trans Union, Experian, and Equifax, and the company reporting inaccurately, providing proof that you paid on time.

This can take weeks to fix. If you have a mortgage in process, your lender can bring in a rapid re-scoring company to expedite the process at a reasonable cost.

There is no guarantee that correcting information will raise your score by any specific amount.

Know The Codes

If your report is accurate, your scores have “reason codes” you can use to determine the biggest factors bringing your score down. The most common, according to Equifax, include:

  • Serious delinquency.
  • Public record or collection filed.
  • Time since delinquency is too recent or unknown.
  • Level of delinquency on accounts is too high.
  • Amount owed on accounts is too high.
  • Ratio of balances to credit limits on revolving accounts is too high.
  • Length of time accounts have been established is too short.
  • Too many accounts with balances.

Note that the most often-used word in those codes is “delinquency.” If your credit history looks like a rap sheet, littered with late payments, charge-offs and judgments, you’ll need to put some time between your mistakes and your next loan application.

You might even want to reach out to an expert for credit repair.

You won’t be able to start the process until you bring your accounts current. However, your creditors may be able to help you out.

Make Sure You Pay On Time

Next, get a system to ensure on-time payment. It takes about six months of on-time repayment to make a meaningful difference in your credit score, so start as soon as possible.

Set your accounts up on autopay from a checking account. Choose a payment date that follow your paydays and make sure money is there to cover your debts.

If you can’t afford your payments, enlist the help of a non-profit credit counseling service. They can possibly lower your monthly payments, bring accounts current, get penalties waived and help you toward debt-free status.

This may be called a debt-management plan, or DMP. A DMP is not a debt settlement plan, which you should probably avoid.

Some experts recommend that you consider bankruptcy if a DMP won’t pay off your unsecured debts within five years.

High Balances on Existing Debt

The other main category of reason codes concerns the amount of debt you’re carrying. FICO looks at the amount of credit you have with the amount used (utilization ratio), the balances and number of accounts with balances.

Credit bureaus look for spending patterns that are unsustainable. For instance, if every month you spend more than you earn, your payments increase each month, leaving even less disposable income.

Eventually, you have no more available credit and you can’t make your payments.

Fortunately, fixing this changes your score almost immediately. If you have savings to pay off your accounts, consider using it. It’s a safe bet that the interest you’re getting is a lot less than what your creditors are charging.

If you don’t have savings to cover this, you may be able to improve your score by paying off your credit card balances with a personal loan or home equity loan. Lowering your revolving (credit card) account balances drops the utilization ratio.

Don’t do this unless you are 100 percent confident that you will not use your credit cards until the new loan is repaid.

If you have more questions regarding your FICO score and getting into a home loan, please contact me, as it would be my privilege to help!

How Credit Scores Impact Loan Interest

It seems like those with good credit catch all the breaks when it comes to getting lines of credit. It’s easier for them to qualify, and they get lower interest rates.

Well, there’s a pretty good reason for it.

A person that has good credit has a low statistical probability of defaulting on a loan. Therefore, they are given a lower interest rate. A person with a lower credit score has a much higher probability of defaulting, therefore they are charged a much higher interest rate to cover the losses incurred by lenders by those who do default.

It’s all about mitigating risk.

One of my favorite finance bloggers, Cleverdude, has a great piece with specific examples of credit scores and interest rates that shows how much you can really save by working on that credit score.

Find out more here….

He concludes that “people with good credit also have an easier time keeping and improving their credit because they get lower interest rates, which lowers their monthly payments. This makes loans easier to pay back, and keeps more money in their pockets.”

Wise words from the Cleverdude, indeed.

 

 

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