FINANCE AND CREDIT
CREDIT DO’S AND DON’TS
PREMIER PROPERTIES OF NEW ENGLAND HOME BUYER INFORMATION 781-419-9300
CREDIT SCORING
1. Today mortgage lenders, banks, and credit unions are first looking at credit scores to determine a borrowers ability to repay a loan. a. This is not limited to home loans: car loans, personal loans, and unsecured lines of credit are priced and made based on a borrowers credit score. 2. Since the late 1900's, lenders have underwritten loans based on a scoring or grading system that was created by the major credit bureaus. a. It is not a perfect system, but it is the best system available to expedite loan decisions.
b. There are three major credit bureaus in the United States, each with its own scoring system. 3. Credit scores range from 850 all the way down to no score available. Here's a guideline to determine where you might fit in the world of scoring.
Score
Grade
Today's Rates (Rates vary based on market conditions)
740-850
A+
4.250% - Full Closing Costs
720-740
B+-A-
4.375% - Reduced Closing Costs Possible
700-720
B
4.490% - Reduced Closing Costs Possible
660-680
C+
4.750% - Reduced Closing Costs Possible
640-659
C-‌
4.875% - Reduced Closing Costs Possible
4. Many factors affect a credit score. Here are some issues that tend to be forgotten: ~ ~ ~ ~ ~ ~ ~
Disputed Accounts Collection accounts, judgments, liens Co signatures Previous marriage and relationships Going from high-rate to low-rate credit cards Student Loans Unused credit cards
Credit scores decrease by 2-12 points each time your credit is checked. Shopping for a mortgage should be completed over a 2-3 week period. This way your credit score will be viewed as only taking 1 hit for multiple credit pulls IF all are from mortgage companies.
Information provided by Premier Properties of New England, Leader Bank, and Kaplan Real Estate Education
CREDIT DO'S AND DON'TS DURING LOAN PROCESS ** Don't close any credit cards in any 30-day period. ** Maintain credit card balance at 20%-30% of credit limit. ** Do stay current on existing accounts. One 30-day notice can be costly. ** Do not open up any new credit cards. Opening a new credit card will reduce your score by 15 points and take six months of good payment history before you earn then back. ** Do remove all disputes from all accounts. Any disputes must be removed, even if the account is paid and closed and this process can take up to 90 days to have the disputes removed from the bureaus. ** Do call our loan officer. Call before making any address or credit changes that might affect your score. ** Don't apply for new credit. Every time a potential creditor or lender pulls your credit you may lose points from your score. This includes co-signing for a loan. ** Don't pay off collections or charge-offs that are more than 2 years old. If you want to pay off old accounts, do it through escrow. Request a letter of deletion from the creditor. ** Don't close credit card accounts. If you close a credit card account, it may appear that your debt ratio has gone up. Closing a card will affect other factors in the score, including credit history. ** Don't max out over overcharge your credit cards. Try to keep your credit card balances at 30% below their limit during the loan process. If you pay down balances, do it across the board. ** Don't consolidate your debt. When you consolidate all your debt into one or two credit cards, the debt will appear that you are maxed out on that card and you will be penalized. It is important to remain below 30% utilization of your available debt on each account. ** Numerous loan programs, including Mass Housing, now require borrowers to have (3) active trade lines appearing on your credit report in good standing with at least 12 months of history. Examples of an active trade lines are: Auto loans, Student Loans, Installment Loans and Revolving Credit cards.
Credit Repair: www.myfico.com
Information provided by Premier Properties of New England, Leader Bank, and Kaplan Real Estate Education
BASICMORTGAGEPROGRAMCOMPARISON
Conventional Mortgages: 1. The max. loan amount is $417,000 for a single family property and higher for multifamily property. 2. Qualifying ratios are 29% / 43% of gross income. 3. For down payments less than 20% of the purchase price, mortgage insurance is usually required. 4. Conventional mortgage loans are not assumable. 5. Two months of PITI reserves are required for conventional mortgages. (Not always required for FHA or VA loans.) 6. There are fixed rate or adjustable-rate loan programs. 7. Conventional mortgage loans may cost less than FHA loans due to MIP (Mortgage Insurance Premiums.) 8. Mortgage insurance ceases at an 80% loan-to-value ratio for conventional with an appraisal proving 20% equity but does NOT cease for FHA loans. 9. There are more program options and higher loan limits called jumbo or non-conforming loans. FHA Mortgages: 1. Maximum loan limits vary by county. Visit http://portal.hud.gov/portal/page/portal/HUD for specifics. There are High Balance loans that vary by county for conventional loans as well. 2. Qualifying ratios are 31% and 43% of gross income, and as high as 50% with compensating factors. 3. Mortgage insurance is 1.75% of the loan financed, plus 1.35% annually calculated into monthly mortgage payments. 4. Monthly MIP remains for the life of the loan. 5. Owner-occupied, one to four family properties only. 6. Assumable to lender's discretion. 7. Minimal cash upfront investment required- minimum of 3.5% of purchase price. 8. Liberal qualifying ratios. 9. Bankruptcy history potentially financeable after 1-2 years from discharge.
Information provided by Premier Properties of New England, Leader Bank, and Kaplan Real Estate Education
11. Closing costs are not allowed to be part of the 3.5% down payment. 12. The seller may contribute up to 6% of the sale price towards buyer's closing costs, fees, required pre-paid items, and discount points. 13. Maximum mortgage is calculated by the lesser of the sale price or appraised value time 96.5%. 14. Rental income from a primary residence being vacated in favor of another principal residence is not allowed to be part of qualifying income unless; a. The home buyer is relocating with a new employer, or being transferred by the current employer to an area that is not within a reasonable commuting distance, or b. The homebuyer has a 75% LTV (loan to value) or less, as determined by a current (no more than 6 months old) residential appraisal on the current primary residence. VA Mortgages: 1. The maximum loan amount throughout the United States is $417,000. 2. These loans are fixed rate only, with 15 to 30 year terms available. 3. The VA funding fee (similar to MIP) is 2.15% of the loan amount with zero down, 2.40% for National Guard/Reserve veterans, and 3.30% for repeat users. 4. The loan is only for eligible veterans and their spouses. 5. These loans are assumable with qualification. USDA (Rural Development) Program: 1. Rural development loans are used to help low-income individuals or household’s purchase homes in rural areas. Funds can be used to build, repair, renovate, or relocate a home, or to purchase and prepare sites. 2. Qualified loan applicants must have an income of up to 115% of the median income for the area. Families must be without adequate housing but also be able to afford the mortgage payments, including taxes and insurance. Applicants must have reasonable credit history. 3. No money down 4. Only financed mortgage insurance, no monthly mortgage insurance. The financed amount is 3.3% of the loan amount. 5. Liberal qualifying, including reduced or no credit scores required. 6. More information available at www.rurdev.usda.gov. Information provided by Premier Properties of New England, Leader Bank, and Kaplan Real Estate Education
Jumbo Loans: 1. Loan amounts in excess of Conventional loan limits. a. Typically $417,001 - $2 million
2. Special underwriting availability- Not to Conventional guidelines. 3. May be exempt from state statues 4. Can have pre-payment penalties 5. Typically higher cost than Conventional loans. 6. Loan money comes from private investors, commercial banks, insurance companies, or investment funds/bankers. MASS HOUSING LOANS: 1. Available for as little as 3% down with a 680 FICO or 5% down with a 660% FICO - With ZERO mortgage insurance on a single unit and 95% financing available for multi-family properties. 2. Borrowers must meet income & loan limits. Borrowers income limits are by county, check with your loan officer for the county for the maximum income allowed for the county you are buying in. 3. Debt-to-income ratio: 45% on LTVs ≤ 95%; 41% DTI ≤ 97% LTV FIND A QUALITY LENDER: Don’t settle for less! Ask your family members, friend, and co-workers whom they used when purchasing their last home. Once you receive 2-3 names of reputable lenders who have proven track records of providing consistent outstanding service to your family/friends, you’ll ready to begin the process by comparing lenders and your options. Make a wise decision. Not every lender can offer the same mortgage options, so make sure you find lenders with ALL mortgage products so you can select which loan product works best for your individual situation. If obtaining positive referrals proves difficult, we can make solid recommendations for lenders who have served our clients with exemplary service. If you have questions or desire additional finance information, we would be privileged to provide any information needed.
Information provided by Premier Properties of New England, Leader Bank, and Kaplan Real Estate Education