Bill McCord's Blog

Not just a Mortgage Issue

 Most people know that your Credit Score (FICO) has a significant effect on whether you can get a Mortgage.

What is not generally known is that FICO is increasingly being used by Employers, Insurance Companies,

Utility Companies, Apartment Complexes and a growing list of other organization which provide services for regular payments.

These and many other groups consider it a good indicator of general reliability and whether bills will be paid on time.

The Best Home Loan News of The Year.

How about a mortgage loan program that GIVES you up front 3% of the price of the home you want to buy, and that:

0 Never has to be paid back.

0 Is NOT limited to 1^st time buyers.

0 Works with FHA and V/A loans.

0 Down to 620 credit scores.

Here’s a simple example:

Tom and Jenny earn $6,300 per month between them, and over the past year have saved $5,000 toward the down payment on a house they love priced at $300,000. Therefore the lowest possible down payment allowed is 3.5% of that price i.e. $10,500

Add in reasonable closing costs of 1.5% ($4,500) and they are about 2 years away from being able to buy.

Using the CHF program they will receive a grant for $9,000, add in their current cash of $5,000 and they are Ready to Buy right NOW.

I think this would qualify as good news for Tom and Jenny, and  many other wanna-be homeowners in similar situations.

If you would like more information contact me at bmccord@rwnetwork.com or http://www.nhfloan.org/programs/CHF_Platinum/Guide_CHF_Platinum.html 

Potential home buyers, or anyone thinking of refinancing are finding that their credit scores are vastly more important now than in the boom years. However, they seldom know the effect of even one “minor”  bad credit event.

For example:

Tom has a barely o.k. 68O FICO score but makes a 30 day late mortgage payment. It will take 9 months for his score to get back to that level assuming no more late payments.

Dick has an good 720 Fico and makes a 30 day late payment. It will take 2 ½ years to get back.

Harry has a very good 780 FICO but after a 30 day late pay it will take 3 years for him to get back to that level.

The financial costs of  lower credit range from being unable to get any loan, to paying a higher interest rate and higher fees for anything below 720, finding it virtually impossible to get any loan below 640.

The moral is of course to pay your bills on time at all times.

NOTE: Getting and maintaining good credit is a greatly misunderstood process with mountains of free but inaccurate advice. I can strongly recommend Ken Strey kstrey@creditlinei2.org for pretty much anything related to your credit.

A recent change to your Mortgage qualifying process has been adopted by all Lenders. Banks now run a NEW Credit Report on the Day your loan is due to fund i.e. ONE DAY BEFORE CLOSING. If you have taken on any new debt since applying you might no longer qualify for your loan and be unable to close the deal. If you have removed your loan contingency this could put your deposit at risk.

This applies to both Purchase and Refinance Loans.

If you have applied for any NEW Credit since you were preapproved the loan underwriter will be required to call the new trade line and get proof that no new credit was extended.

If new credit was extended, they will recalculate the debt to income ratios and the application will need to be re-underwritten. Even if you still qualify THIS WILL CAUSE A SIGNIFICANT DELAY TO CLOSING.

This delay could potentially ruin the whole deal.

I personally have had 3 of these situations happen. Fortunately none of them caused major problems but in all cases caused between 7 and 10 days delay in closing.

 If you have made any new credit application since being qualified,

tell your Real Estate Agent, and Loan Agent right away and deal with it before it becomes time critical.

The new FICO® 8 Score is fast becoming the new standard. It has already been adopted by over 3,000 banks and other financial institutions.

But is it good news or bad news for you as a consumer?

Their are multiple small changes but the two I see as the most significant are:

1. Multiple late payments will now carry a heavier penalty than in the past. These are the 30, 60, 90 day lates that show up under “Derogatory” accounts.

2. The penalties for using too much of any credit are increased. If you have any type of credit with a maximum amount available your score will be lowered if you owe  more than 30% of the total maximum allowed. This can be your VISA or Sears card, or a Home Equity Line of Credit. NOTE.

 This applies even if it is a company credit card in your name.

The result of these changes can mean your credit score can be lowered even if you never had a late payment in your life. Too much credit availability is a no-no. This will apply most frequently when applying for a mortgage, when the bank will assume your total debt to be the maximum amount of money you can get at with just your signature.

FICO scores measure the risk that an individual will default by evaluating their history of credit management. The exact formulas used are top secret but FICO has given the following components and the approximate importance of each:

35%- Payment History. Late payment bills such as Mortgage, Credit Cards, Car loans etc will lower a person’s FICO score to drop. Paying bill as agreed over time will improve the score.

30% – Credit Utilization. The ratio of current revolving debt (Credit Card and Charge Account balances) to the total available credit (Credit Limits). Consumers can improve their FICO scores by paying off debt and reducing balances to less than 50% of the available credit. Closing existing revolving charge accounts can have a negative effect on this ratio and lower your score. Before closing accounts be sure to do some more research, or get qualified advice.

15% – Length of Credit History. Time improves FICO scores without any action other than paying all bills on time.

10% – Types of Credit Used. FICO scores are improved by having a record of good history of managing multiple types of credit (Installment, Revolving, Consumer finance etc).

10% – Recent Credit Applications. Multiple requests to obtain new credit over a short period of time can hurt an individual’s FICO score. However, individuals shopping for the best rate for a Mortgage or Auto Loan over a short period will not see any negative impact on a FICO score. All such enquiries will be counted as just one.

http://www.myfico.com/CreditEducation/