The following are things to avoid doing when you are applying for a mortgage. Some of these items are common sense, but others you may not think are deal killers but in the end, can cost you the best product available.
If you're considering buying a home but your credit score is preventing you from purchasing...you may soon be in for a pleasant surprise! According to a recent report, Your credit history could improve, leaving you to make your next home purchase dream a reality!
Millions of consumers may soon witness a striking jump in their credit scores. Prospective borrowers can now qualify easily for mortgages.
A recent report by the Consumer Financial Protection Bureau outlined a number of problems it found with the big three consumer reporting companies- Equifax, Experian and TransUnion along with suggested reforms that could help consumers improve the accuracy of their own credit reports as well as those all-important three-digit scores.
The agency said Equifax, Experian and TransUnion had insufficiently quality control systems that failed to conduct reasonable investigations when consumers disputed something in their files.
"Equifax, Experian and TransUnion continually seek ways to ensure the data they maintain on their consumer credit files is accurate and current," Eric Ellman, interim president and CEO of the Consumer Data Industry Association, which represents the three major credit reporting companies, said in a statement to CNBC.
To that end, improved standards to new and existing public records in their databases will be implemented on July 1, the CDIA said. And as part of this change, some civil debts and tax liens will be excluded, which means some credit scores will edge higher.
Removing that negative information could boost scores for roughly 12 million consumers by up to 40 points or more, according to The Wall Street Journal. Analyses conducted by the credit reporting companies, along with FICO and Vantage Score, showed more modest credit scoring impacts.
On one hand, the removal of tax-lien and civil judgement data from credit reports may encourage more consumers to borrow but on the other hand, it might also increase the risks for lenders as they would not be able to determine borrower’s default risk accurately enough. As per the Journal report, consumers with lien or judgements are twice as likely to default on loan payments.
“It’s going to make someone who has poor credit look better than they should,” John Ulzheimer, credit specialist and former manager at Experian, told the Journal. “Just because a lien or judgment has been removed and someone’s score has improved doesn’t mean they’ll magically become a better credit risk.”
Sources: The Wall Street Journal and Mortgage Professional America
The FHA (Federal Housing Administration) believes the premium cut “will significantly expand” access to mortgage credit and lower the cost of housing for approximately 1 million households who are expected to purchase a home or refinance their mortgages using FHA-insured financing in 2017.
If you are one of those people that love to file their tax returns as soon as they can but you are also looking at buying a house in the next year or two, then you may want to consider before you send in your return to the IRS to consult with your mortgage consultant to see if you have anything on your return that can negatively affect your getting a loan. I have had many clients that do not understand what their tax preparer has done on their taxes to reduce their tax, and what you don’t understand can stop you from getting the house of your dreams. So to be proactive, if you think there is any chance of buying in the next 2 years, just double check with a mortgage professional that you are doing what’s right both for yourself and for the loan that you want in the future!
I have clients that often come to me wanting an FHA loan because they have heard it’s for first time buyers. True or false? If you answered true, then you would be wrong….FHA can be for a first time buyer or a 2nd or third time buyer! There are some programs that are for first time home buyers when it comes to down payment assistance that you can only use with an FHA loan, but the loan itself is not for first time buyers. True or False- if you put down more than 20% on an FHA loan, then you will not have mortgage insurance. False! With an FHA loan, no matter how much you put down, you will pay monthly mortgage insurance. And FHA has the highest mortgage insurance premium on a 30 year loan. I’ll continue with more FHA facts in another blog as it’s important to know your financing choices.
Many years ago, people used to say that in order to refinance, you had to go down a full percent for it to make sense. That is not the case today. What makes sense today is how much you are saving monthly and how much will it cost you to do the loan? My own rule of thumb is that if it takes you over 3 years to make up the cost, then you may not want to refinance. It also depends on how long you plan to stay in the house at the time you refinance as well. The other thing to consider is how many years have you been paying on this mortgage and if going back to a 30 year makes sense or if lowering the term works as well.
There are many different factors on whether or not to refinance, and your loan amount is also a big factor. The higher your loan amount, the less of a percentage you need to go down to in order to save some good money. Lower loan amounts may benefit more by reducing the term with the rate for a refinance to make sense. As always, check with a mortgage professional to run the numbers for you to determine if a refinance is a good idea or not.
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If I put more money down, will that help my payment?
Putting more money down can help your payment in different ways. You can put down a minimum of 5% on a conventional loan with a conforming loan amount. If you put down more than that, you should only put down in 5% increments as each 5% reduces the amount of mortgage insurance you pay. Putting down 20% gets rid of the mortgage insurance completely.
If you want to put down more money to reduce your payments, then it’s not as much of a difference in your payment as you would think. Remember, your loan is typically over 30 years, and a few thousand doesn’t make as big of a dent in 30 years. I always advise my clients when they are looking to put more down, to look at their debts…you will get more “bang for your buck” by paying off credit cards or other debts then by putting more down.
A few more things to remember when buying a home ……if you have a living trust and want to put your title in the trust name, let your loan officer know upfront…..give them a copy of the trust or ask them what they need right from the start….some lenders won’t vest title in the trust and some will….some need the complete trust papers and some only need a trust certification….but always check at the beginning and don’t leave it till the end….and if for some reason you can’t vest in the trust with your loan, doing a quitclaim after closing is fairly simple to do to change the title into the trust.
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