What Lenders Look for in Your Credit Score

Credit is a significant component in enabling you to qualify for a mortgage, whether it’s a new purchase or a refinancing. Here are some of the basics you need to know about credit to help you become a more informed consumer.

Your credit score

Your lender will access your credit score to evaluate your creditworthiness. The term “credit score” refers to the middle of three scores, obtainable through three credit bureaus that provide scores: TransUnion, Experian and Equifax.

Several factors will affect your credit score, but there are two that play more significant roles than the others:

1. Revolving debt, such as credit cards that are over their limits, and

2. Recent late payments.

Pay down your cards

Credit cards that are over their limits, especially when you have several of them, indicate that you are overextended with the credit that you have available to you.  This weighs on your credit score in that lenders may be reluctant to give you more credit if you are having challenges with the debt that you currently have.

There is a solution to this. Often you can have a positive effect on your credit score simply by paying off or paying down credit card debt to show that the amount of credit available to you is much larger than what you owe.

Recent late payments are another flag for lenders who are looking at your credit profile and assessing your ability to pay back the loan.

Over time, many items on a credit report will either fall off or have a minimal impact on your score.  It is, however, the most recent items on the report that give lenders an idea of your payment habits.

If you have had a number of late payments in the past several months, you may be sending out signals that this will be your behavior after receiving a mortgage.

Hire a Real Estate Attorney – You’ll Be Glad You Did

In any real estate transaction, your money couldn’t be better spent than on the services of a real estate attorney. Here are some reasons why you need a real estate attorney and what he or she can do for you.

In the course of any real estate transaction, you will be presented with all types of documents, and it is very important that these  be examined by an attorney specializing in real estate. These include the purchase contract, the home inspection, the appraisal and the settlement documents when you get to closing.

As knowledgeable as your real estate and mortgage professionals are about the inner workings of a real estate transaction, questions may arise that are outside  their areas of expertise. They will be the first to tell you that their expertise is limited to their respective fields and that questions on contractual issues are best left to a good real estate attorney. They also will suggest that your attorney is the one to ensure that the other party in the transaction (buyer or seller) is complying with the terms of the contract.

A real estate attorney is totally neutral in your transaction.  He or she is paid the same regardless of how much your home costs and can bring an objective eye to all the documents and other elements involved in your sale or purchase. This is especially important when you are purchasing a short- sale or foreclosure property.

In looking for a real estate attorney, try to find one where real estate transactions represent a sizeable percentage of their business. Those who handle more than a few transactions a month will be more up-to-date on the legal aspects of real estate.

What Parents Need to Know About the FHA Condo Program

Parents whose children will be moving to attend school might want to consider the Federal Housing Administration (FHA) Kiddie Condo program.

In a nutshell, this program allows parents to buy a home that their child can live in and also collect rent from their child’s roommates.

The program is a Housing and Urban Development (HUD) program administered by the FHA. Students and their parents can purchase a home together as a primary residence.

Keep in mind that if this were to happen in a program other than the Kiddie Condo program, the property would be considered an investment property. Thus, it would involve much larger down payments and the interest rate would be much higher.

Many students have little or no income or assets to bring to the table. This is where the parents come in. The benefit to the student is that he or she can have a mortgage payment history by the time he or she graduates from college.

When qualifying for this program, keep in mind that the student by himself or herself may be unable to qualify from an income perspective.

He or she will have to demonstrate some type of minimal positive credit history. At a minimum, he or she needs to have no adverse items such as late cell phone or credit card payments and a student’s credit score must be high enough to qualify on his or her own.

Ask your mortgage professional for more details about this program.

What’s the Best Loan Program for You?

If you’re looking to purchase a home, the most traditional way to obtain financing is to use a Federal Housing Administration (FHA) mortgage or a conventional mortgage.

Each has its advantages and disadvantages.

FHA Mortgages

The FHA is a division of the U.S. Department of Housing and Urban Development.

These mortgages have become more popular over the last few years because the qualification guidelines are more relaxed than those for conventional mortgages, though they are a bit pricier to obtain.

To purchase a home with an FHA mortgage, you must put down at least 3.5% of the purchase price. This must come from your own documented funds or from those of a close relative.

You’ll pay two types of mortgage insurance. The first is called upfront mortgage insurance, which can be financed. The other is monthly and will last a minimum of five years into the loan.

Credit guidelines vary from lender to lender and you will likely need a credit score of around 640 to qualify. There are normally no asset reserves required with FHA mortgages.

Conventional Mortgages

If you want to go with a conventional mortgage, the requirements are a little steeper, but the overall cost is lower.

Minimum credit scores will be a bit higher, close to 720, without a premium attached.

Buyers must also be able to show two months in asset reserves. If you can meet these two requirements, you can bypass upfront mortgage insurance, which can be significant.

Monthly mortgage insurance applies only if you are putting less than 20% down.

For more details on each of these programs, contact your mortgage professional.