Category: Notes

Notes

Buying a home? Check your credit before mortgage

Consumer Financial Protection Bureau (CFPB) has published an essential set of guidelines for consumers looking for a mortgage. CFPB highlights:

Buying a home is one of the most important financial decisions you’ll make. Choosing a mortgage to pay for your new home is just as important as choosing the right home. You have the right to control the process.

Research shows that people who plan carefully for big purchases, like owning a home, are less likely to run into financial trouble later. So if you are thinking about buying a home this year, the first step is to check your credit. It’s always a good idea to review your credit reports and scores periodically, even if you’re years away from shopping for a home and a mortgage. If you’re planning to buy a home this year, we recommend checking your credit reports and scores as soon as possible.

The better your credit history, the more likely you are to receive a good interest rate on your mortgage loan. Lenders will use your credit reports and scores as important factors in determining whether you qualify for a loan, and what interest rate to offer you. If there are errors on your credit report, you may have trouble qualifying for a loan. So, don’t delay in checking your credit. Review your credit reports and take steps to fix any errors.

Credit basics

A credit report contains information about your credit such as the status of your credit accounts and your payment history. Lenders use these reports to help them decide if they will loan you money, and at what interest rate. Credit reporting companies (also known as credit bureaus or consumer reporting agencies) compile these reports. Credit scores are calculated using a mathematical formula — called a scoring model — that companies and lenders use to predict how likely you are to pay back a loan on time. Your credit scores are calculated from the information in your credit report.

Your credit report

Here’s a step-by-step guide to getting, reviewing, and understanding your credit reports.

1. Request your free credit report online or over the phone.
There are three major credit reporting companies – Equifax , Experian , and TransUnion . Each company maintains a separate report. You have the right to a free copy of your credit report once per year from each of the three companies at www.annualcreditreport.com . You can also call 1-877-322-8228.

If you review your credit report from one of the major companies every four months, you can get a good idea of your credit throughout the year at no cost. However, if you are planning to start the homebuying process within the next six months to a year, you may want to request and review all of them at once to check for errors or issues. Checking your credit report will not hurt your credit score.

Your free credit report does not include your credit scores – keep reading to learn how to check your scores.

2. Review your credit report.
Once you get your credit report, you will want to review it carefully. Ordering it is not enough — you have to read it. Credit reports may have mistakes. And if there are mistakes, you are the one who is most likely to find them. Incorrect information can appear on your report because the credit bureaus processed the information incorrectly or because lenders or debt collectors sent flawed information to the credit bureaus or did not update the information they previously reported. Incorrect information may also be a result of fraud, such as when someone uses your identity to open accounts or takes on debt without your knowledge. You should review your credit report for any errors or fraudulent activity.

When you review your credit report, look for:

  • Incorrect first and last names
  • Addresses of places where you did not live
  • Names of employers you did not work for

Review each account listed on your credit report. If you see any of this information, highlight it:

  • Accounts you don’t recognize
  • Accounts that are listed twice
  • Accounts that have been closed but are listed as still open
  • Incorrect current balances
  • Incorrect negative account information, such as late payments and missed payments
  • Negative account information, such as late or missed payments, that is more than seven years old

Check the credit inquiries section of your credit report:

Look at the section labeled “inquiries that may impact your credit rating” or “inquiries shared with others.” Are there any companies listed that you don’t recognize? This section should only include companies that you have applied for credit with in the past two years.  Inquiries listed in sections labeled “inquiries shared only with you,” “promotional inquiries,” or “account review inquiries” do not impact your score.

Check the “negative information” section:

  • Are there accounts placed in collection that you don’t recognize or that are more than 7 years old?
  • Are there public records such as civil lawsuits, judgments, or tax liens that you don’t recognize or that are more than seven years old?
  • Are there bankruptcies that are more than 10 years old?

With each credit report you get, use this checklist to help you review and check for errors.

You can use CFPB’s printable Credit Report Review Checklist to help you review each section of your credit report. We recommend using this worksheet for each credit report you get throughout the year. Then, keep the completed checklist with your credit reports.

3. Report any errors, fraudulent activity, or outdated information.
If you find errors or fraudulent activity after your review of your credit report, you have the right to dispute inaccurate or incomplete information. Keep in mind that there’s a difference between inaccurate or incomplete information and negative but accurate and complete information. Both can lower your credit score, but a credit reporting company will only correct information that is inaccurate or, incomplete, or outdated.

To dispute an error, you should contact both the credit reporting company and the company that provided your information to the credit reporting company. For example, if you review your report and find a listing for a student loan you never took out, you should contact both the credit reporting company that provided the report and the student loan company listed. Be sure to include supporting documentation with your disputes to both companies. The companies must conduct an investigation and fix mistakes as needed.

The three major credit reporting companies provide instructions for filing a dispute online: Equifax , Experian , and TransUnion . You can also submit a dispute by phone or paper mail. The CFPB provides a sample dispute letter that you can use if you want to submit your dispute by mail.

No matter how you submit your dispute, make sure to include:

  • Your complete name
  • Your address
  • Your telephone number
  • A clear description of what you are disputing (e.g., wrong name, not my account, wrong amount, wrong payment history)
  • If you are disputing something about a specific account, a clear description of which account, including the account number if possible
  • Copies of any documents you have that relate to the inaccurate or incomplete information

Beware of any service that says it can dispute inaccuracies for a fee. You have a legal right to dispute inaccuracies yourself, at no cost. If you find an error on one of your credit reports, check your credit reports from all three reporting agencies. Lenders operate differently from one another, so while one may pull your Experian report, another might pull your TransUnion or Equifax report. It’s important to make sure they’re all accurate.

If you find outdated negative information on your credit report, contact the credit reporting company and ask that it be removed. Bankruptcies are considered outdated if they are more than 10 years old. Most other negative information is considered outdated if it is more than 7 years old.

Your credit scores

A credit score is a number based on information contained in your credit report. You don’t have just one credit score. There are many credit scoring formulas, and the score will also depend on the data used to calculate it.

Different lenders may use different scoring formulas, so your score can vary depending on what type of score the lender uses (a mortgage score or an auto score, for example). Today, most mortgage lenders use a FICO score when deciding whether to offer you a loan, and in setting the rate and terms. Your FICO score will differ depending on the credit bureau and FICO scoring model your lender uses – so you have an Experian FICO score, an Equifax FICO score, and a TransUnion FICO score. Also, be aware that your score changes as the information in your credit report changes.

Different scoring formulas may come up with somewhat different numbers for your credit score, but they are all based on the same key information:

  • Your payment history: How you’ve handled loans and credit cards. This category includes details about whether you’ve made payments on time, missed payments, or had accounts in collection.
  • How much you owe: The amount of debt you’re carrying compared to your available credit line or the original loan balance.
  • Length of credit history: How long you’ve been borrowing money.
  • Credit mix: Your history managing different types of loans.
  • New credit: How many accounts you’ve applied for or opened in the past six to twelve months.

Most FICO scores range from 300-850. A higher score makes it easier to qualify for a loan and may result in a better interest rate. As of March 2015, the median FICO score nationwide was 721. The best rates go to borrowers with credit scores in the mid- to high-700s or above.

How to get your credit score?

There are several ways to get a credit score, some of which are free. When choosing how to get a score, pay attention to the fine print about how the score is calculated. Some companies that offer credit scores use different scoring models than lenders use. Here are 4 ways to get a score:

Check your credit card or other account statement (free). Many major credit card companies and some banks and credit unions have begun to provide credit scores for all their customers on a monthly basis. The score is usually listed on your monthly statement, or can be found by logging in to your account online.
Talk to a non-profit counselor (free). Non-profit credit counselors and HUD-approved housing counselors can often provide you with a free credit report and score and help you review them. A counselor may also be able to help you with the homebuying process.
Buy a score (comes with a fee). You can buy a score directly from the credit reporting companies. You can buy a FICO credit score at myfico.com . Other services may also offer scores for purchase. If you decide to purchase a credit score, you are not required to purchase credit protection, identity theft monitoring, or other services that may be offered at the same time.
Credit score services (can come with a fee). Many services and websites advertise a “free credit score.” Some sites may be funded through advertising. Other sites may require that you sign up for a credit monitoring service with a monthly subscription fee in order to get your “free” score. These services are often advertised as free trials, but if you don’t cancel within the specified period, you could be on the hook for a monthly fee. Before you sign up for a service, be sure you know how much it really costs.

Source: https://www.consumerfinance.gov/about-us/blog/buying-home-first-step-check-your-credit

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Notes

Mortgage 101: Pre-approval vs. Pre-qualification Letter

Mortgage Pre-Approval:

A mortgage pre-approval is a written commitment that’s issued by a lender following a comprehensive analysis of their overall creditworthiness. A pre-approval includes such factors as verification of income, verification of employment, available financial resources, as well as the evaluation of other areas typical of a credit evaluation process.

Mortgage pre-approval status for a loan is usually conditional upon the following:

1. A suitable property. The identification by the buyers of a suitable property.

2. Continued creditworthiness. Continued creditworthiness means there is no material change in the applicant’s creditworthiness or overall financial condition before closing the sale.

3. Additional terms.  Other limitations that may or may not be related to the creditworthiness and financial condition of the applicant. These added items are ordinarily attached to the traditional mortgage application by the lender and can include an acceptable title insurance binder, the completion of a home inspection with some types of loans (VA and FHA), a certification of no termites, or similar again with certain kinds of mortgage products.

An issuance of a mortgage pre-approval letter from the lender implies that a credit decision has been made that will more than likely favor the issuance of a mortgage commitment letter at some point shortly. In effect, the mortgage loan has been submitted to underwriting.

Mortgage Pre-Qualification Letter

The concept behind a mortgage pre-qualification is this: you are a buyer, and you’re looking for a home. You might not have sufficient funds to purchase a home for cash; however, this defines most home buyers. As a result of these circumstances, your ability to buy a home depends on upon your ability to borrow money. Because of this, you’ll talk with potential lenders before shopping for homes to determine your mortgage buying power and be able to consider different loan programs to decide which might be ideal for you.

“A mortgage pre-qualification” is an estimate of your borrowing power. It is, in effect, a statement from the lender putting forth that based upon your current financial circumstances, i.e. income, debt and credit levels, you will likely be qualified for a mortgage for a certain amount. Receiving “pre-qualification” can be accomplished fairly simply by just a phone call to the lender. The lender may or may not run your credit report to confirm the details of your finances and get a clearer picture of the amount and terms you’ll qualify for.

Pre-qualification vs. Pre-approval: What’s the Difference?

In a nutshell, the difference between being “pre-approved” and “pre-qualified” is as follows:

“Mortgage pre-qualification” is a determination about whether or not the prospective applicant will most likely qualify for a loan within the lender’s current programs and standards. It is also a decision about the possible amount of the loan for which the prospective applicant will qualify.

“Mortgage pre-approval” is a much more formal process. With pre-approval, you’ll have completed an application with the lender, supplied them with income data, your W2’s, bank statements, etc. The bank has gathered information about your employment and will also run your credit report; the lender will have run the application through an automated underwriting process. A pre-approval is a far more complete and comprehensive process than what is utilized for pre-qualification status.

The Mortgage Pre-Approval Advantage

A pre-approval means that you are far closer to receiving a mortgage loan commitment from a lender than with just a pre-qualification. A pre-approval can help buyers to take some of the guesswork out of the home buying process. In the eyes of any seller, you are considered a “stronger customer” with pre-approval status than with just a pre-qualification letter.

Pre-approval is very helpful as a bargaining tool in negotiating a better deal with a seller. Overall, having a pre-approval can make you feel more comfortable with the home buying process and have more of a leg to stand on when negotiating with sellers. It should be duly noted that any good Real Estate agent is going to require a buyer to have a pre-approval letter and NOT just a pre-qualification when they are representing a seller.

You should understand that neither a “pre-qualification letter” nor “pre-approval” are viewed as absolute, iron-clad loan commitments from lenders. A creditor will still have to look closer to assess property appraisals, verify the information collected, and in some cases, re-check the applicant’s credit report again before agreeing to issue a loan. Having a pre-approval in hand, however, is about as close as you can get to knowing you will get financing.

When a buyer is pre-approved they will typically not get financing unless one of the following takes place:

  • The buyer loses their job before closing.
  • The buyer has misrepresented something in their mortgage application.
  • The buyer has not disclosed something to the lender like an impending divorce.
  • The home does not appraise for the value needed to get financing.

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Original Source: Maximum Real Estate Exposure

Notes

2016 State of Hispanic Homeownership Report

The 2016 State of Hispanic Homeownership Report focuses on the household formation rates and the consequent homeownership growth of Hispanics as well as their related educational achievements, entrepreneurial undertakings, labor force profile, and consumer purchasing power in the country.

The 2016 year’s installment highlights data that provides a comparative analysis of this past year and data from previous years since the beginning of the 21st Century. The report specifically analyzes the demographic and economic trends that shape the homebuyer market, including cultural nuances, and the role of Hispanics as drivers of homeownership growth in the United States.

Key insights:

In 2016, 7,301,000 Hispanic households owned their homes. This was a 209,000 increase from the previous year, and accounted for 74.9 percent of the net growth in overall U.S. homeownership. For the second consecutive year, the Hispanic homeownership rate de ed national trends.

The Hispanic rate of homeownership increased from 45.6 percent in 2015 to 46.0 percent in 2016, while the nation’s overall homeownership rate declined to 63.4 percent, a 51-year low. Comparatively, the rate of homeownership for non-Hispanic Whites remained at at 71.9 percent, while the rate of homeownership for both Blacks (42.2 percent) and Asians/others (55.5 percent) both declined by approximately one full percentage point during the same year. Since 2000, Hispanics have added roughly 3.1 million new homeowners, a 73 percent increase.

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Source: Hispanic Wealth Project