| Lets
talk about your credit. A separate
section on About
Your Credit goes into detail
on how to get your report, what
credit scores are based on,
correcting errors and improving
scores. Here we are going to talk
about facts, your history as you
believe it to be today, and the
guidelines that apply to each
situation. Click
Here
to apply online.
Would
you rate your credit: Good,
Fair, Poor, or Excellent? AND,
Why?
Do you know your credit score from
all three major repositories: Equifax,
TransUnion, and Experian?
Have you been more than 30 days
late on your rent or mortgage?
Have you been more than 30 days
late on your car payment?
Have you been more than 30 days
late on your credit cards?
Do you have any collections,
judgments, or liens?
Do you have any bankruptcies,
foreclosures or repossessions?
Do you have student loans?
Do you have any debts from a
previous marriage?
Do you have four lines of credit
that are at least 2 years old?
Credit Score:
Most loans on the market today are
credit score driven with the
exception of FHA (one of the best
loan programs on the market for
people with minor issues that
lower scores) and a very few
non-conforming loans. Credit
scores range from 300 to 850. A
rule of thumb: The higher your
score, less risk, lower interest
and less down payment required.
Lower scores could require a
larger down payment and could have
higher interest.
Credit
scores are just one factor but
here is the basic break down for
loan qualification:
A
score of 620 and above will get
you into a conventional conforming
loan with the lowest rates
available (Fannie Mae and Freddie
Mac). These rates are 1% above the
10 year T-Bill.
In
the non-conforming market credit
scores will determine your
interest rate. You may be in this
market for many reasons, not just
score. It could be because; your
loan amount exceeds conventional
guidelines (jumbo), the house does
not qualify, no down payment, high
debt ratios, credit history
issues, or you could be self
employed and don't show enough
income to qualify.
Credit
scores above 620 will get you the
best rates in this market which is
1 to 2 points higher than the
conforming market, depending on
the type of loan you are getting.
Scores
from 580 to 620 could put you as
much as 3 to 4 points higher in
rate, and you can still qualify
for a zero down program.
If
your score is below 480 you will
need at least 20% down and the
rate will be 4 or more points
higher.
Credit Payment History:
Your payment history contributes
about 35% towards your overall
credit score but history is also a
qualifying factor on it's own.
Underwriters look at the last 7
years and if there are no Glaring
issues such as bankruptcies or
collections or judgments they are
most concerned with the last two
years. This is what the
underwriters are looking for:
Mortgage/Rent:
This has to be your number one
priority. If you have been more
than 30 days late on your rent or
mortgage in the last 12 months you
will not qualify for a Fannie Mae,
Freddie Mac, or FHA/VA loan.
Again, there are sometimes
exceptions. If you have a very
high score, lots of assets, and a
legitimate excuse. If you can't
get a waiver for a late mortgage
payment there are still loans
available to you in the
non-conforming market. The
interest rate will depend on how
many times you have been late.
Car
payment/installment loans:
Your history should reflect no 60
day late payments and no more than
one 30 day late to get a
conforming loan. The
non-conforming loans allow these
and again the rate depends on how
many late payments you have had.
Revolving
accounts (credit cards):
You must not have any 60 day
"lates" and no more than
two 30 day "lates" for a
conforming loan. Non-conforming
loans do allow them and again the
rate is dependant on the number.
Collections,
Judgments, and Liens:
Fannie Mae, Freddie Mac, FHA and
VA require that all be paid in
full and they prefer that they be
at least two years old. FHA will
sometimes make an exception on the
length of time or if they are on a
current payment plan in which case
all other things must be good.
Typically, the non-conforming
market does not care if they are
paid off or not as long as they do
not impact title. Some
non-conforming lenders want them
paid off if they are over a
certain amount. This market is a
maze of guidelines and they differ
from one lender to another. This
is another reason why you always
want to use a broker.
Bankruptcy:
Fannie Mae and Freddie require 4
years from discharge date. FHA
only requires 2 years and a good
excuse, and reestablished credit.
Actually, you can Qualify for an
FHA loan if you are still in
chapter 13 (for at least a year)
have been paying on time through
the courts, and you get court
approval which does happen often!
Non
conforming lender requirements
vary quite a bit. As a general
rule they do want to see
reestablished credit unless you
are putting 20% down. There are
some lenders that will lend with
one day out of discharge. Your
credit score is very important on
these programs. Again, you need a
broker to sort out the details for
you. Guess what, that's free, and
no obligation. They will look at
your entire portfolio and if they
can't get you in something now,
they will counsel you on the steps
you need to take to get in a loan
later. Be sure you seek out a
broker that has ALL the products
on the market including FHA.
Foreclosure:
Generally, a foreclosure of your
primary residence must be at least
three years old and have been
caused by circumstances out of
your control: such as, death of
the primary wage earner, layoff,
or long term serious illness.
Non-conforming lenders do vary but
will normally require a
substantial down payment if it is
less than 3 years old.
Repossessions:
The guidelines on this are about
the same as a foreclosure except
that it cannot have a deficiency
balance for a conforming loan. The
non-conforming market doesn't care
about the balance if it is more
than three years old and again,
their guidelines vary from one
lender to another.
Student
Loans:
Defaulted student loans will haunt
you for the rest of your life.
Unless they are re-affirmed or
paid off you will never get a
conforming loan. However, the
non-conforming market generally
does not care about them at all
except in extreme cases to the
tune of $50k or more.
Previous
Marriage??:
Be
careful here. The conforming
market could care less about your
divorce agreement with respect to
your debt. If you signed, you are
still accountable. FHA will
sometimes make a wavier if you can
show the divorce decree that
states it is the other parties
responsibility and all other
things are good. (these debts will
also affect your debt to income
unless you can prove the other
party is paying with 12 months
cancelled checks.) The
non-conforming lenders will
normally except the divorce
decree.
Credit
Depth:
Generally this term refers to how
many trade lines you have, how
long you have had them and their
amounts. Most lenders want to see
at least a two years history and
at least 4 trade lines. Some
require one of those trade lines
to have had a balance over a
certain dollar amount ($5,000). In
the non-conforming market these
requirements vary between lenders.
You
can see how poor credit will cost
you a lot of money in higher
interest. It is important to take
care of your credit and monitor
often as it sometimes contains
errors. Below are the links to the
three major credit repositories.
These are the companies that
lenders use. It is very
inexpensive to get your report
online.
I
recommend that you order your
report from these three agencies.
Always get the report that shows
your credit score because your
report is useless without it.
These companies also have online
support to help you correct any
errors that may be on your report.
Brows their sites, there is a lot
of good information about credit
history and scores.
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