My Credit Score isn’t the same? Why?

When your lender ‘pulls your credit’ they get a Tri-Merged credit report.  That translates to, the single credit report they receive is a compilation of all 3 of the main credit bureaus reports.   The lender will use your Mid-Score.  That is not the average of your 3 scores, but the middle of the 3 scores.

Why do I have 3 different scores?  Shouldn’t they all be the same?

It seems like all the scores should be the same, but each bureau does its own computations; coming up with their own numbers.  Also, some companies only report to one credit agency, not like your mortgage that reports to all 3; So some of the credit agencies have different information to base your credit score on.

The lender will only use your mid-score to determine what type of loan you will qualify for.  So if they do need to do any credit repair, they will just work with the one credit bureau reporting your mid score.

Correcting my Credit – what’s that all about?

There are many services out there that charge quite a bit to clean up your credit score.  If you are considering purchasing a home, I would suggest first contacting a good mortgage banker and see what could be done quickly, or will it be a process that takes time.

If you sit down with your mortgage person (ask me for a couple of very good ones) you can see what is on your credit.  Sometimes, there are a few things that just haven’t been updated.  If you can provide a statement (an online statement is perfect) that shows you have paid off the balance, or reduced the balance on an account.  That could be enough to bring your score up a few points.

If there are any accounts that are old and unpaid, it could hurt your credit to pay them off.  (I never said that determining credit made sense… )  In this case it may be possible to pay it off as part of your closing, and possibly even settle the debt for less money than owed.

Rescoring your credit can be costly; it runs $30 per account per credit bureau.  With several accounts to update quickly, the costs can add up fast.

Managing your credit repair can be tricky.  If you have the time, (you’re not looking to purchase a home or car right away) you can do it yourself.  Choose any of the services that you can get your credit report from, and check it out yourself.  If there are discrepancies;  get it corrected yourself.  Be sure to DOCUMENT, DOCUMENT, and DOCUMENT as you go with certified letters to confirm receipt, copies of everything and be diligent.

What goes into creating your FICO Score?

Most people (74%) believe your credit score is based on your income.  Not True!

• 35% is payment history
  • The most important factor in your credit score is your payment history. Making payments on time is key in keeping and getting your score as high as possible.
• 30% is the amount owed
  • Keep your credit card balances low, at the most have 30% owed and 70% available credit.
• 15% is the history of your credit
  • How long have you had credit established? If you have all new credit, this could hurt you.
• 10% is new credit (less than 6 months old)
  • Getting new credit can help someone with little or no credit, if all of your credit is established, not to worry
• 10% type of credit
  • Diversity is best, a car loan, home loan, and a couple of credit cards.

Great credit requires a delicate balance.  Not too much on credit cards, not only a home loan;  But a balance, on time payments and the time to prove you are credit worthy.

All credit reports are not created equaly

I discovered a few new things at a class on Credit recently.

I had always thought a credit report is a credit report. That is not true. A consumer credit report and a lender credit report are two different critters. If you go to any of the credit reporting services, the score you get today, and the score your loan officer will get on the same day will not likely be the same. The lenders score will be lower.

Why? Well it has to do with the purpose for getting your credit scoring in the first place. For your personal information, for qualifying for insurance, and other smaller concerns, your score will be higher. If you are applying for a loan, especially a loan to purchase or refinance a home, the factors they take into consideration are weighted differently.

If you have excellent credit a few points either way won’t make a difference. With mediocre credit, a few points either way could increase your payment, or keep you from purchasing a home all together.

Why use your Realtors preferred lender?

The short answer: All lenders are not the same.

I recently completed a transaction where the lender was one my client had been working with. I respect the relationships that are built between LO (loan officer) and buyer. My client had been working with this LO building her credit back up and getting to the savings goals she needed to purchase a home.

As we started he promptly emailed me the LSR (Loan Status Report) a document that is included with every offer filled out by both the LO and the buyer. Soon after we were in contract, all going smoothly…. Everything was great.

Till it wasn’t. The LO was never available to answer his phone, he didn’t respond to his email. I finally had to call his office and get connected with his loan processor. The file had been in underwriting for over a week, we had been told we would get the file back in 48 hrs. I had no idea what the delay was. And with no communication, I was fearful of the worst. The selling agent was anxious too. We were supposed to close in just a few days, and I couldn’t get the lender to communicate!

When he did communicate, he assured me that the file would be out of underwriting that afternoon…. But it wasn’t and not the next day or the next… once the file did come out of underwriting it was to be just 48hrs till the documents would be at the title office for signing, and funds were to be sent at the same time as the docs so there would be no delay. It took almost another week to get the docs, and the funds were delayed beyond that.
Thank goodness the seller was patient. We extended the contract again, and again, again and finally closed.

It takes a team to purchase and close on a home. Each person is needed to do their part, working hard behind the scenes to make the transactions move along smoothly. If there is one member of the team not holding up their part, it makes the whole transaction stressful for everyone.

Communication is key, I don’t care if you prefer to communicate via phone, email, text or any other form as long as you communicate.

In this instance the buyer had her belongings packed in a truck and had fully moved out of her previous home, and had to stay with friends as she was homeless during the delays.

Lending changes

I mentioned in one of my previous posts (Down Payment Assistance Programs - are they at an end?)  that Down Payment Assistance was ending as of October 1st.  That is a federal guideline. 

Many of the lenders, knowing this rule was coming into effect, adjusted their guidelines early.  Several lenders no longer accept the Down Payment Assistance loans at all.

If you require down payment assistance and are looking to purchase a home.  You better do it quick.  Most of the lenders require you to be in contract and have your loan locked by the end of August. 

 

Good Real Estate News on the front page of the paper

This weekend, on the front page of the Arizona Republic they actually shared positive news about the real estate market.  The housing market, priced under $350,000 is seeing lots of recovery.  We have a closer to normal supply of homes at just over 7 months.  Over the $350,000 we still have a 17 month supply.  My broker, Jim Sexton was interviewed for the article.

What is it about the magic number of $350?

Well the FHA home purchase amount in Maricopa county is about $355,000.  An FHA loan allows someone to purchase a home with 3% down and their closing costs. If you ask the seller to contribute to your closing costs, and/or down payment assistance programs (available until October 1, 2008) a buyer can purchase with little or no money down. 

Other conventional loans require 20% or more down payment.  So you can see why FHA loans are popular, and why homes are selling quickly in the acceptable price range.

Down Payment Assistance Programs - are they at an end?

On July 30th the President signed The Housing and Economic Recovery Act of 2008.  This bill will not allow FHA to insure any mortgage where the down payment comes from and 3rd party directly or indirectly.  That means programs like AmeriDream, and Nehemia will no longer be able to assist buyers in getting 100% financed homes.

Currently, and until October of this year, if you are purchasing a home and getting your financing thru FHA, you can have the seller contribute your 3% down payment, plus the processing fee, to a down payment assistance program, as well as have the seller contribute to your closing costs, allowing a home buyer to purchase with no money down. 

In plain English, if you, or anyone you know is considering purchasing a home, and requires help with the down payment, they will need to purchase a home by October first of this year.  After October, you will have to purchase a home the old fashion way.  With money down. 

You will still be able to have the seller contribute to your closing costs, not the down payment. 

Here is the Summary of the Housing & Economic Recovery Act of 2008.

• One more thing to be aware of is the down payment required for an FHA loan on October first will go from 3% to 3.5%
• In Maricopa county (Phoenix area) the FHA loan amount as of today is $346,250

 

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Buying a Second Home?.. there are new requirements

A big thank you to Robyn Robertson and letting me know these details.  There are lots of seasonal residents here in McCormick Ranch, and many second home owners.  Many purchase with cash, but for those looking to do financing, knowing the requirements is important.  Her post Converting your Primary Residence to a Second Home or Investment Property

Fannie Mae is changing the policies for  qualifying for a loan when borrowers who currently own their  home and decide to purchase a new home and convert their old home to an investment or second home. The changes are

1. The old property must have documented 30% equity,or there must be 6 months of reserves to cover the mortgages on both properties
2. Rental income must be documented with a fully executed lease agreement and
3. Receipt of security deposit from the tenant into the borrowers account.

These new guidelines go into effect on August 1st

 

FHA Rehab Loan 203k

There are lots of foreclosed homes that need more than just a little love.  They need work to be livable.  The standard FHA loan requires the property be livable, no broken windows, appliances in place, no bare cement floor etc. The FHA 203k loan allows for someone who has fallen in love with a house that needs work to still get a loan using the FHA guidelines. The FHA 203k loan is not new.  Some of the qualifications for it have changed making it easier to obtain today than in years past.  The 203k loan is part construction loan and part FHA.  It is designed to help with the purchase of a home that may need repairs or remodeling.  Here are a few improvements allowed.

• room or garage additions
• kitchen or bathroom remodels
• roofing and landscaping
• pool repair (up to $1500)
• electrical upgrades

The cost of repairs are rolled into the loan amount, and the home is appraised as if the repairs have been complete.   The 203k allows for up to $35,000 in repairs with a min of $5,000 to qualify.  The total loan value including repairs can not exceed the FHA limit (346,250 in Maricopa County till the end of this year)

The Federal Housing Administration (FHA) is a division of the Department of Housing and Urban Development (HUD).  HUD was created to make affordable financing readily available to qualified buyers. Also check out HUD’s info on the 203k as well as the FHA site on the 203k.

A big thank you to Robyn Robertson for her sharing this with me.

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