Credit Essentials

Can I Correct A Mistake On My Credit Report?

Simple mistakes are easily corrected by writing to the reporting company, pointing out the error, and providing proof of the mistake. You can also request to have your own comments added to explain problems. For example, if you made a payment late due to illness, explain that for the record. Lenders are usually understanding about legitimate problems.

How Can I Build Credit?

There are 3 rules to building credit: 1. Keep your balances under 30% of your credit limit. 2. Always pay on time. 3. Try to put a little more money towards the principal every month.

How Do I Better My FICO Score?

1. Don't close unused credit cards 2. Avoid multiple credit inquiries unless they are "soft hits" such as promotional inquiries. 3. Write letters to all 3 bureaus, TransUnion, Equifax and Experian if you see credit history derogatories that are not yours. 4. Pay all of your bills on time. 5. Pay down your balances as soon as possible starting with the lowest balances first.

How Do I Get A Copy Of My Credit Report?

As a consumer you are entitled to 1 free credit report annually. Requesting your credit report allows you to review your credit score and account payment history. Additionally, you are allowed to report and dispute any information you deem to be inaccurate. You may access your free annual report from the three major reporting companies at www.annualcreditreport.com. You may also request your report if you are denied credit within the same calendar year. Finally, be prepared to verify your identity. Contact a HUD approved housing counseling agency for help with understanding your credit report.

How Do I Get My Credit History Information?

Once you receive the report, it's important to verify its accuracy. Double check the "high credit limit,"'total loan," and 'past due" columns. It's a good idea to get copies from all three companies to assure there are no mistakes since any of the three could be providing a report to your lender. Fees, ranging from $5-$20, are usually charged to issue credit reports but some states permit citizens to acquire a free one. Also, check out www.freecreditreport.com.

What Are The Factors Of A FICO Score?

According to NeighborWorks America, the breakdown is as follows: 1. Payment history - 35% 2. Amounts owed - 30% 3. Length of credit history - 15% 4. Types of credit - 10% 5. New credit - 10%

What Credit Score Do I Need To Buy A Home?

Housing counselors will typically advise a score of 620 or higher.

What If I Don't Pay Off Old Debt On My Credit Report?

The statute of limitations varies from state to state, and may be different for various types of consumer debts. In many states, they often range from four to six years, calculated from the last payment on the debt. If you are considering not paying, check your state's law. By checking your credit report, you will know if the debt has been sold to another collection company. At that point the statue of limitations date may begin again. Old unpaid debt can stay on your credit report for 7 years and 180 days and should fall off after.

What Is A Vantage Score?

The Vantage Score is a credit rating system developed by the top three credit agencies, Experian, Equifax and TransUnion. It was launched in 2006 and competes directly with the Fair Isaac Corporation's FICO score, the most widely used credit scoring system. The Vantage Score rates an individual's credit from 501 to 990, and at the same time gives each individual a letter grade ranging from A to F. It is used more in consumer lending and auto lending than in mortgage risk assessment.

Why Do FICO Scores Decrease?

1. Old derogatory accounts with balances owing 2. Public record items 3. Opening of new accounts 4. Significatnt balance increases 5. Customers do not pay as agreed, and this is reported

Down Payment Resources

Are There Special Mortgages For First Time Buyers?

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past.

Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

Can I Borrow An Earnest Money Deposit?

Real estate professionals suggest that none of the earnest money deposit is from borrowed funds as this amounts documents the buyer's intent and the ability to pay for the purchase. Any borrowed amounts show up in loan application documents, bank statements and possible credit reports.

How Do I Find Down Payment Assistance?

Ask around. Ask Realtors, lenders and friends. Many counties and cities have 1st time homebuyer programs. An online resource is http://downpaymentresource.com/.

How does the FHA help buyers purchase homes?

The FHA works to make homeownership a possibility for more Americans. With the FHA, you don't need perfect credit or a high-paying job to qualify for a loan.

The FHA also makes loans more accessible by requiring smaller down payments than conventional loans. In fact, an FHA down payment could be as little as a few months rent. And your monthly payments may not be much more than rent.

How much down payment money is required when buying a home?

The mortgage menu is very diverse, and exploring the loan options takes time. What is good for one borrower, is not the best for another. Housing counselors are a good source of information.

I am going to buy my first home, is there downpayment assistance available?

Many federal, state and local agencies administer programs to assist people who need help buying a home. Some of these are loan programs such as the HUD Teacher Next Door program which encourages homeownership in low-to-moderate-income areas. Others provide assistance with down payments or with building a home. Lenders also have a variety of programs in their community involvements.

What are seller concessions when buying a home?

When you purchase a home, make sure to talk to your lender and Realtor about the possibility of seller's concessions. Simply put, these concessions are a set dollar amount or percentage of the purchase price that a seller agrees to contribute to you, the buyer, towards your closing costs which will lower the amount you need to close on the property.

What is the size of down payment for FHA loans?

You must have a down payment of at least 3% of the purchase price of the home. Most affordable loan programs offered by private lenders require between a 3%-5% down payment, with a minimum of 3% coming directly from the borrower's own funds.

Who qualifies for FHA loans?

Anyone who meets the credit requirements, can afford the mortgage payments and cash investment, and who plans to use the mortgaged property as a primary residence may apply for an FHA-insured loan.

Mortgage Solutions

Can I buy a home again after bankruptcy?

Yes, you can purchase a home 7 years after bankruptcy according to most lenders, but it's always best to call a few lenders to confirm as lending programs are always changing.

How long does the eviction process take?

It varies but it can take as little as a week to longer than six months. Real estate laws are dictated by states.

Is 100% financing available?

There are 2 nationwide programs with zero down payments required. The VA mortgage is a no-money-down program available to members of the U.S. military and surviving spouses.
No Money Down options exist for non-military borrowers, too. The U.S. Department of Agriculture offers a 100% mortgage. The USDA Rural Housing Loan is not just a rural loan. It is available to buyers in suburban neighborhoods also. The USDA's goal is to reach low-to-moderate income homebuyers, wherever they may be with 100% financial.
And given certtain locations, other programs could be available. Ask your lender for more information.

My employer has announced layoffs in the coming months, what can I do now?

If you think the layoffs will lead to financial hardship and could prevent you from paying your mortgage, consider whether you can make adjustments to your budget or tap into any savings accounts that would allow you to make your payments. If not, contact your lender right away to let them know about your situation. A housing counseling agency can also be of assistance by helping you to revise your budget to reflect your new financial reality. Sometimes a lender will approve your for a forbearance which will give you time to find new employment.

What does "Short Payoff" mean?

A Short Payoff is a situation in which your lender will accept an amount for your property that is less than the total owed. Other terms for it include pre-foreclosure sale, short sale, pre-sale and compromise sale. However, it’s important to note that there could be serious tax consequences so you should contact a tax attorney or an accountant.

What is the difference between a short sale and a deed-in-lieu?

These two ways of exiting a property vary greatly. In a short sale, the owner lists their home with a Realtor, and the lender agrees to accept less than the amount owed on the loan. The client needs to help market the home, and finding an agent experienced in the process is advised by housing counselors. A deed-in-lieu is an agreement between a lender and an owner, and typically the lender requires that all personal property will be completely removed and the home is in broom swept condition.

What is the foreclosure process and how long does it take?

The foreclosure process varies by state. However, borrowers must receive some warning or notice before a foreclosure can occur. The mortgage or loan documents you signed when you bought the home may include other rights and responsibilities that you have. If you need assistance in reading the documents, contact a HUD approved housing counseling agency in your area.

What should I do if I miss mortgage payments?

Never ignore calls or letters from your lender requesting payment. Instead, contact your lender immediately if you are having problems paying your mortgage. Tell them what’s going on financially and be prepared to provide specific details about your situation such as information about your income and expenses each month.
Don’t abandon your home, as you may not qualify for assistance if you do.
Contact a HUD-approved housing counseling agency and speak with a counselor.

Purchasing a Home

Are you a HUD approved agency?

Yes, HomeFree-USA is a leading HUD-approved homeownership development, foreclosure intervention and financial coaching organization.
We improve the financial position and enrich the lives of everyday people through homeownership and improved financial capability.

Can I pay my mortgage off early?

Most mortgages can be paid off early, and that information is found in your mortgage Note. If you want to pay off your mortgage early, check your Note to confirm that the loan is not subject to prepayment penalties. If there are penalties, you'll want to know what they are. Next, call your lender to learn the dollar amount for your payoff as what you see on the mortgage statement loan balance doesn't include fees or some interest. There are many advantages to being debt free including saving thousands of dollars in interest, but by having all the information, you can make the right decision for you.

Do people with good credit scores need guidance in the homebuying process?

Absolutely. A real estate transaction is complex, and education is helpful to getting the best deal. Many of the services earn their living off of commissions so it's critical to know as much as you can.

How do I compare loans between lenders?

First, devise a checklist for the information from each lending institution. You should include the company's name and basic information, the type of mortgage, minimum down payment required, interest rate and points, closing costs, loan processing time, and whether prepayment is allowed.

Speak with companies by phone or in person. Be sure to call every lender on the list the same day, as interest rates can fluctuate daily. In addition to doing your own research, your real estate agent may have access to a database of lender and mortgage options. Though your agent may primarily be affiliated with a particular lending institution, he or she may also be able to suggest a variety of different lender options to you.

How do I select a lender?

Choose your lender carefully. Look for financial stability and a reputation for customer satisfaction. Be sure to choose a company that gives helpful advice and that makes you feel comfortable.

A lender that has the authority to approve and process your loan locally is preferable , since it will be easier for you to monitor the status of your application and ask questions. Plus, it's beneficial when the lender knows home values and conditions in the local area. Do research and ask family, friends, and your real estate agent for recommendations.

How large of a down payment do I need?

There are mortgage options now available that only require a down payment of 5% or less of the purchase price.

But the larger the down payment, the less you have to borrow, and the more equity you'll have. Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and - possibly -repairs and decorating.

How long do property title insurance policies last?

If you purchased the policy, it will last indefinitely as of the purchase date as long as you own the property. However, any liens placed on the property later will not be covered. For example, if you did not pay a remodeling contractor who did work on the home, and the contractor placed a lien on your property, that would not be covered. Other prior features of the property, such as an existing easement, would be covered.

How long does it take to get a loan?

As a rule of thumb, most lenders ask for 30 to 45 days to receive approval from an underwriter for a loan.

How much money will I have to come up with to buy a home?

That depends on a number of factors, including the cost of the house and the type of mortgage you get.

In general, you need to come up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.

Should I have a home inspection?

Paying $300 to $500 for a home inspection is considered a wise investment as the inspector could reveal costly required repairs or future maintenance problems with the home. The buyer can learn how to care for their new home and understand more about the various components, plumbing, electrical, mechanical or structural features. In addition, sometimes reported deficiencies can be used as contract price negotiations or credits for the buyer.

Should I use a real estate broker? How do I find one?

Using a real estate broker is a very good idea. All the details involved in home buying, particularly the financial ones, can be mind-boggling. A good real estate professional can guide you through the entire process and make the experience much easier.

A real estate broker will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering...the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more.

With immediate access to homes as soon as they're put on the market, the broker can save you hours of wasted driving-around time. When it's time to make an offer on a home, the broker can point out ways to structure your deal to save you money.

He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don't have to pay the broker anything! The payment comes from the home seller - not from the buyer.

What are closing costs?

There may be closing cost customary or unique to a certain locality, but closing cost are usually made up of the following:

Attorney's or escrow fees (Yours and your lender's if applicable)

Property taxes (to cover tax period to date)

Interest (paid from date of closing to 30 days before first monthly payment)

Loan Origination fee (covers lenders administrative cost)

Recording fees

Survey fee

First premium of mortgage Insurance (if applicable)

Title Insurance (yours and lender's)

Loan discount points

First payment to escrow account for future real estate taxes and insurance

Paid receipt for homeowner's insurance policy (and fire and flood insurance if applicable)

Any documentation preparation fees

What are discount points?

Discount points allow you to lower your interest rate. They are essentially prepaid interest with each point equaling 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point.

When shopping for loans, ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Discount points are smart if you plan to stay in a home for some time since they can lower the monthly loan payment. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.

What does a mortgage payment cover?

Most loans have 4 parts which are abbreviated to PITI and sometimes PITIA if there is an Association such as a condo association fee or a homeowner association fee. The parts are defined as:

Principal: the repayment of the amount you actually borrowed

Interest: payment to the lender for the money you've borrowed

Homeowners insurance: a monthly amount to insure the property against loss from fire, smoke, theft, and other hazards required by most lenders

Property taxes: the annual city/county taxes assessed on your property, divided by the number of mortgage payments you make in a year.

What information do I need to apply for a mortgage?

Delivering thorough and detailed documents to your lender is critical to loan approval by the underwriter. A list documents include: 1. Social security numbers for both your and your spouse, if both of you are applying for the loan 2. Copies of your checking and savings account statements for the past 6 months 3. Evidence of any other assets like bonds or stocks 4. A recent paycheck stub detailing your earnings 5. A list of all credit card accounts and the approximate monthly amounts owed on each 6. A list of account numbers and balances due on outstanding loans, such as car loans 7. Copies of your last 2 years' income tax statements 8. The name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information

What is a (203k) loan?

This is a loan that enables the homebuyer to finance both the purchase and rehabilitation of a home through a single mortgage.

A portion of the loan is used to pay off the seller's existing mortgage and the remainder is placed in an escrow account and released as rehabilitation is completed. Basic guidelines for 203(k) loans are as follows:
- The home must be at least one year old.
- The cost of rehabilitation must be at least $5,000, but the total property value - including the cost of repairs - must fall within the FHA maximum mortgage limit.
- The 203(k) loan must follow many of the 203(b) eligibility requirements.
- Talk to your lender about specific improvement, energy efficiency, and structural guidelines.

What is a Good Faith Estimate?

It's an estimate that lists all fees paid before closing, all closing costs, and any escrow costs you will encounter when purchasing a home.

The lender must supply it within three days of your application so that you can make accurate judgments when shopping for a loan.

What is earnest money?

Earnest money is money put down to demonstrate your seriousness about buying a home. It is also known as a good faith deposit.

It must be substantial enough to demonstrate good faith and is usually between 1-5% of the purchase price (though the amount can vary with local customs and conditions). If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal, you may forfeit the entire amount.

What is mortgage insurance?

Mortgage insurance is a policy that protects lenders against some or most of the losses that result from defaults on home mortgages. It's required primarily for borrowers making a down payment of less than 20%.

What is PMI?

PMI stands for Private Mortgage Insurance or Insurer. These are privately-owned companies that provide mortgage insurance.

They offer both standard and special affordable programs for borrowers. These companies provide guidelines to lenders that detail the types of loans they will insure. Lenders use these guidelines to determine borrower eligibility. PMI's usually have stricter qualifying ratios and larger down payment requirements than the FHA, but their premiums are often lower and they insure loans that exceed the FHA limit.

What is the difference between a prequalification and a preapproval?

They are quite different. Pre-qualification is an informal way to see how much you maybe able to borrow. You can be 'pre-qualified' over the phone with no paperwork by telling a lender your income, your long-term debts, and how large a down payment you can afford. Without any obligation, this helps you arrive at a ballpark figure of the amount you may have available to spend on a house.

Pre-approval is a lender's actual commitment to lend to you. It involves assembling the financial records mentioned in Question 47 (Without the property description and sales contract) and going through a preliminary approval process. Pre-approval gives you a definite idea of what you can afford and shows sellers that you are serious about buying.

What is title insurance?

Title insurance is for your and your lender's protection. The policy insures against any defect in the title, old liens, unpaid property taxes, easements or claims on the title.

What's the difference between being prequalified and preapproved?

Prequalification is an unverified estimate of what the lender thinks you can qualify for, many times after they have run a quick credit report. Preapproval is a result of submitted documentation from the client such as, paystubs, bank statements and tax returns in addition to reviewing the credit report.

When does an ARM make sense?

An adjustable rate mortgage may make sense If you are confident that your income will increase steadily over the years or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.

Why should I buy, instead of rent?

A home is an investment. When you rent, you write your monthly check and that money is gone forever.

But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.