What’s In a FICO Score
Posted at 1:21 am | Filed Under mortgage-financing-tips.info
When you’re applying for credit whether it’s a credit card, a car loan, a personal loan or a mortgage lenders will want to know your FICO score. FICO is an acronym that stands for “Fair Isaac Credit Organization” and has become the main “measuring stick” mortgage companies use to predict whether or not someone is a good credit risk. FICO scores range from 300 to 850 and, unlike in the game of golf, a low score is not good.
Here are some general rules regarding FICO scores. If your score is below 500, mortgage companies consider you a poor credit risk, and you will not be approved for a mortgage. On the other hand, if your score is 700 or above . . . well, just tell us how much money you want and we’ll drop it off on your door step the next day! Just kidding, but you get the picture. A score between 500 and 619 tends to put you in what we term a “sub-prime” category, which means you will pay a higher interest rate if your loan is approved. Scores between 620 and 699 are weighed along with a variety of other factors in determining whether your loan will be approved and what interest rate you will receive. Again, the higher the score, the better.
If I’ve got you wondering, “What’s my FICO score?”, you can do one of two things. You can go to www.annualfreecreditreport.com and retrieve a free copy of your credit report from all three Credit Reporting Agencies: TransUnion, Equifax, and Experion. I always sugest paying to get the credit scores so you have a rough ideas of where you stand; unfortunately with the free service, they will not provide you with credit scores; thank the government for that.
Once you receive it, I will review it with you to ensure everything is as it should be and recommend changes that could increase your score. The other way to get your score is to go to www.myfico.com and purchase one of the services they offer, which range in price from $14.95 for one bureau report to $44.85 for all three. You should be aware that some businesses
will sell or give you credit scores that are not FICO scores and may also give you credit management advice that does not apply to FICO scores and could actually hurt your credit standing with lenders.
How Does FICO Determine Your Score? In taking a closer look, we get an understanding with this breakdown from the experts who understand credit scoring and how various choices you make impact your score…..
35% of your score is derived from payment history. Pay your bills on time and avoid judgments, collections and tax liens and you’ll be OK. The longer you pay your bills on time, the less your credit score will be affected. If you are late, however, the score takes into consideration how late (i.e., 30, 60, 90 days past the due date), how much was owed, how recently the late pay(s) occurred and how many there were. A 90-day late payment is not as risky as a 30-day late payment, in and of itself. Recency and frequency count too. A 30-day late payment made just one month ago will affect your score more than a 90-day late payment from five years ago.
30% of your score is derived from balances carried on accounts. The lower your balances the better. Revolving credit card debt is the most significant factor in this area. Scores are significantly reduced if your revolving credit balance is close to or at your credit limit. The scoring model considers you to be “maxed out” when this happens. One of the easiest ways to increase you FICO score, if you find yourself “maxed out”, is to ask the credit card company to increase your credit limit, and if possible, to do it without pulling your credit. Pulling your credit will create a credit inquiry, which we will talk about later. If at all possible, keep your balances below 45% of your available credit limit.
Be aware that some credit card companies, Capitol One for example, withhold or fail to report your credit limit. When this happens, the scoring system typically substitutes your highest reported balance on the card for your missing limit. That in turn will often depress your score because it will appear you are “maxed out” when in fact you may be nowhere near your credit limit.
15% of your score is derived from the average length of time you have had credit. The longer the amount of time, the better. So if at all possible, never close a credit card account . . . just stop using it if you no longer have a need for it. Being added as an “authorized user” to someone’s older credit card account will help a lot also. The card should be at least seven years old to make a decent impact in this area.
10% of the score is derived from the mixture of credit you have on your credit report. To maximize your score in this area, FICO would ideally like to see on your record a mortgage, a car loan and a few credit cards. The “magic” number of credit cards to have is three, but it is never a good idea to close credit cards to get down to that number because closing cards does more damage than the benefit received by having fewer cards.
And finally, 10% of your score is derived from the number of times you apply for credit because each time you do so, you generate a credit inquiry , which, as stated, can work against you. The number of your accounts that are new is also an important factor. Inquiries remain on your credit report for two years, although FICO scores only consider inquiries from the last 12 months. Important to note is that all mortgage inquiries made within a 45-day period are treated as one credit inquiry no matter how many times your credit is pulled for that purpose.
Douglas Boncosky is a Licensed Mortgage Planner with Smart Mortgage Access in Schaumburg, IL. Doug has written a number of articles about mortgage related financing including his popular book titled “First Time Home Buyers Guide to a Stress Free Home Buying Process” Doug also writes a series of business improvement articles to help his marketing partners grow their business. Doug can be reached at http://www.dougboncosky.com
Tags: credit repair, credit score, improving credit, mortgage financing, refinanceHome Mortgage Loans Buying Your First Home but Low on Cash Read On
Posted at 2:16 am | Filed Under mortgage-financing-tips.info
If you are buying a home for the first time and are looking to apply for a mortgage loan, one of the recommended paths is through the internet because it is quick and easy. You can also compare the policies and fees of multiple lenders to find the best option for your financial situation.
It is very important to carefully choose the mortgage terms that will benefit you the most. If you wish to borrow as much as you can against your income, it is probably a good idea to accept an adjustable interest rate mortgage with low initial payments. For a more secure loan involving less risk, fixed rates are a viable option. The length of the loan also affects the interest rate and monthly payments.
Online research is also suggested because you can request quotes from numerous lenders, and compare rates and closing costs. If you plan on moving or refinancing your initial home mortgage, you should pursue a loan with lower closing costs rather than focusing on low rates. Once you’ve found the appropriate mortgage company, you can also apply for the loan online even if you haven’t purchased a house. Getting pre-approved for the loan is good because you can settle the interest rates and terms with the lender.
Corey Senn is a Senior Partner with Bad Credit Lender, a California based private lender that specializes in hard money loans and bad credit loans. Bad Credit Lender provides competitive California hard money loans, bad credit home loans, and bridge loans. In addition, Corey is one of the main contributors to the California Home Mortgage Loan web blog.
Tags: Bad, credit, equity, finance, hard, home, lenders, loans, money, mortgage, purchase, refinanceGetting Your First Home Mortgage Loan
Posted at 2:11 am | Filed Under mortgage-financing-tips.info
As expected, buying a home for the very first time can be quite stressful, especially if you are not familiar with the entire process. Hopefully the information below makes you a little more knowledgeable in the specifics, as it is useful in obtaining a better offer when you are applying for a mortgage.
Mortgages: The Basics
Generally speaking, a mortgage is the money borrowed from the lender that is used to buy a house. The cost of borrowing this amount of money is represented by the interest rate. You can typically find lenders anywhere, especially since the mortgage industry has expanded given the increase in property availability. The combination of investors seeking a high return and the government pushing the “American Dream” ideal has led to a great influx of money into the mortgage business.
Mortgage lenders come in many different forms. They can be public or private companies, private investors, and banks, just to name a few. To find a suitable lender, you can contact a mortgage broker who will help you conduct your search and match you up with a lender who best suits your situation. An alternative approach is to do your research and shop around by yourself. A quick and easy way to do this is via the internet. There are numerous websites for you to browse at your disposal, and it is important to remember that the terms and policies of a loan offer are for the most part malleable. That is, you can always negotiate more beneficial terms, so never accept an initial offer.
Process Length
The entire process of applying for and agreeing on a mortgage negotiation takes somewhere between thirty and ninety days. This number is based upon a few variables, such as the nature of the lender and the property situation. It is important to note, however, that the actual process of shopping for and tracking down the right lender may take weeks if not months.
Home buyers with good credit may stumble upon favorable terms more quickly than those with a poor financial report. Another important factor to consider is the availability of the property. To make things easy on oneself, it is wise to construct some sort of timeline so that you can save enough money for the time when escrow closes.
Fixed Versus Adjustable Mortgage Rates
Which rate to choose is basically up to the buyer, for neither one is “better” than the other. However, one may be more integral to a buyer’s needs. If the borrower wishes to have an interest rate that is slightly higher than normal, but assured that the payments will be consistent in value, then a fixed mortgage rate is the way to go. On the other hand, if the buyer prefers to have a low interest rate upon agreeing to the terms of the loan and is willing to risk an increase in future payments, the adjustable mortgage rate would be a good choice.
You may even be able to find a lender who is willing to somewhat combine the two types of rates, meaning something in the middle of the road that ends up working better under the circumstances.
Points on a Loan
A point is equal to one percent of the principal amount borrowed which is paid to the lender in return for a reduced initial mortgage interest rate. For instance, if you are borrowing $500,000 and are required to pay 2 points, then you would have to pay the lender $10,000 to lower the interest rate.
Just because paying points entitles you to a lower interest rate, you still may end up paying more money by choosing this route. It is important that you carefully calculate each scenario so that you can decide which option will save you the most money in the long run.
The Loan-to-Value Ratio
This ratio determines the amount of money you are able to borrow against the property value. In other words, the amount borrowed is a percentage of the value of the property. As an example, suppose your property is valued at $750,000, and the principal amount of your loan is $500,000. The loan-to-value would be about 67%.
Typically, lenders do not like to loan more than approximately 80% of the market value of the property. However, there are certain lenders, called sub-prime lenders, who will let a buyer borrow a loan-to-value of 100%. This is recommended if your credit report is not as noteworthy as you would like. Do some research to see if you qualify to be approved for a sub-prime loan.
Gregrey Pashby is a writer and contributor for Bad Credit Lender who specialize in bad credit loans and hard money loan information. Bad Credit Lender provides poor credit mortgage refinance loans, bad credit home loans, and hard money loans. In addition, Greg is one of the main contributors to the Coastal La Jolla Funding — A California Hard Money Lender and 1st Access Hard Money & Foreclosures.
Tags: Bad, credit, equity, finance, hard, home, lenders, loans, money, mortgage, purchase, refinance