Feeling squeezed into a mold by your loan officer?

I saw this picture and thought first, I think I would rather snore. Then I thought about you and the hoops you have to jump through to get to a mortgage approval.

Does it feel like do this, do that, oops! Not enough. Do this more, do that differently, etc.

Often you just don’t have the taxable income, length of employment, credit, or you want to take advantage of gifted equity, a contract sale, or a unique property.

The majority of customers are unique and need a unique solution, not a cookie cutter, force you into their mold lender. Go where there is more than a handful of Options...

Options for self employed, rental properties, manufactured homes, and renovations, just to name a few.

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Explosion of credit can be destructive!

At times a client will come to me with a large number of new credit accounts, usually maxxed out, and with no previous history.  It appears that they believe that the abundance of credit lines, or getting a lot of heavily used credit accounts, equates to good credit.

Why is that simply not true?

Credit score is heavily dependent on the history of paid on time payments.   You can’t short cut your way to that.  The best way to even consider a short cut is to make sure that every payment is made on time for one full year, not for one month, and it can be actually detrimental to open a number of accounts within a short period of time.

Why can it actually be bad?

Well, let’s try to think about it from the identity thief perspective.  The thief would now be opening as many accounts as possible and maximizing the debt in order to take as much as they could as quickly as they could.  Do you begin to see the reason this is so detrimental to your score when you do a similar thing?   The next creditor is asking themselves if they are being had…

Worse still, a trade line without a history actually can have a negative effect on score, and that is multiplied when the balance on a credit card is over 50% usage (some say 30%)!  So instead of helping your credit, you could be doing the exact opposite.

So the concept of opening as many cards as possible and using them to the full makes you look like an identity thief, can hurt your credit, and make it unlikely that the next creditor would accept you!  It’s best to avoid an explosion of credit.  For advice on your situation, look me up.

100% financing rocks!

I am often asked about 100% financing.  It’s okay to ask, but qualifying, whew!  Some have minimum scores, some have minimum rules, and lots have income limitations, location limitation, even employment (veteran) or worse.

So what is it that makes 100% financing so attractive to so many, that it’s often our first question?

Well, let’s face it, it’s a lot like rent.  I can put a minimum amount of money into this and then I can move in and have a payment just like a rental.   This could open up the American Dream of home ownership to so many.

Why, then, is it so hard to get?

Well, as you can expect, the default rates (late payments and eventually foreclosures) are unfortunately higher when you simply don’t put any money into it.  This does not excite investors, lenders, etc.  The entire risk of the entire transaction would fall back on the lender, as someone could enter the property, never make a payment, and live there “rent free” for quite some time before the lender could respond and foreclose.

So lenders, even USDA, have strict criteria.  3 C’s of credit explained here  Simply put, if you don’t have a lot of down payment to cover collateral, the credit and capacity requirements are probably going to be stricter.

What are some of the requirements to get 100% financing on a new home?

VA – you have to be an eligible veteran or a family member of an eligible veteran.  This happens to be the BEST option for a mortgage!

USDA RHS – you have to be in a rural area.  Check here for an easy to use eligibility guide.

Housing assistance – you have to be low to moderate income usually.  Sometimes there is also a credit score limit.    This is a forgivable second mortgage for the down payment or even the closing costs sometimes.  Here’s a nice article on the subject.

Combination packages with 80% Loan to Value on a 1st mortgage and then a 20% second mortgage.  This also has a lot of fine print and may simply be a way to give those with higher credit scores yet another option to get to 100% financing…

It’s worth looking into your next home mortgage loan at 100% financing!

 

Below 620 score, there is still hope!

I am often asked, “but my credit score is not 620, can I still get a home mortgage loan?”

YES!!!  I want to shout it from the rooftops.  But instead, I will just write this blog…

600-619 credit scores:  there are manually underwritten VA, FHA, and USDA loans.  These are not bad options, in fact, they can be great options (low down payment and still a good competitive interest rate).

580+ allows for a manually underwritten FHA loan.  Again, a great option.

580+ also allows for a bank statement program and a number of other options.

500-580 scores: with a little more down payment (20-35% down), there are a lot of options available from individual investors (lenders).

NO score: this is really surprising to a lot of people, but both conventional and FHA loans both have no credit score options.  You have to show alternative credit, but the list is quite extensive and generally easy to find something that fits.

Do you have no credit score, a low credit score, or some other factor weighing on your score?  There are still options made for you with a mortgage banker with more home mortgage loan options.

Is collateral a sure thing in mortgage lending?

Perhaps our zero down and no down payment advertising has reached everyone’s ears so many times, that now we have come to expect it.  We hear no down, low down, and finally believe every customer gets zero down payment.

One issue in our rising real estate market, is that it is possible to overbuy a home.  If someone bids up on a home, but thinks that the bank is going to cover it, they may be in for a big surprise when the appraisal comes in lower than the actual purchase price.   While this doesn’t happen all the time, it is certainly possible as houses are bidded up higher, but the customer is not adding that much more to their down payment.  Many times they are expecting the bank will just cover that price increase.  This is a hazard for both the customer (did they overpay?) and the bank (did they overloan?).

Unfortunately, the statistics show that zero down mortgages have more risk of default.  It’s maybe because the mortgage payment is viewed a little like rent, since no money into the deal has caused the customer to have very little at risk.

So when any negative credit circumstance happens, typically a lender is looking for more money down.  That makes bankruptcy, foreclosure, short sales, etc. and the many loan programs for those options come up as 10, 15, 20, 25, 30, even 35 percent down!  A cash out refinance can even require more equity in the home.

This is already seen with 20 percent down to avoid mortgage insurance or the heavier down payment typically required towards a rental property.  All of these options carry a lower risk of default for the bank and a better case for recovery should the bank have to take back the property in a foreclosure.

What does this mean to you?  Ask a lender with more options to review the many options available to you.  Be willing to take steps (more down, some debt paid off or down, etc.) to make the loan process work for you.  And negotiate with the help of an expert to keep the selling price in line with what the market (and an appraisal) will support…

 

 

No credit score home mortgage loans!

You have heard the adage, “no credit is better than bad credit.”  I am not here (in this blog) to tell you what bad credit is, but I am here to tell you that no credit score from all 3 bureaus is not a problem in home mortgage lending!  Hard to believe, well check it out:

1. Fannie Mae – AKA “conventional” – yes, Fannie Mae has a program for no score!  It is of course not as easy as a 7 page credit bureau history, but honestly, it’s not that hard either.  Currently rates are competitive and the program is not that difficult.  Also, they allow as low as 3% down payment for a first time home buyer. A few extra hoops to jump through are listed down below.
2. FHA – manual underwriting – yes, there are at least 2 options.  FHA may be better for some other reasons, but they also have a 3.5% down and some extra hoops listed below.

So what’s the catch?  The catch lies in two things: education and an “alternative” credit history.

1. Education – since it’s obvious you are a first time homebuyer, you will likely need a training class on home ownership.  Depending on where you live in the country, that means online (easier and faster) or sitting in a classroom setting with a local housing counselor.  Either way, it’s about a $100 and over in 2 hours.  It will go over some mortgage basics as escrow, property tax, and homeowners insurance.  It also mentions maintenance (often forgotten until something goes wrong) and other home ownership topics.
2. Alternative credit – the list is so long (and could change), let’s just say that most bills you pay regularly are likely on the list.  Things like rent, insurance, a buy here/pay here car, utilities, etc.  You need 3 (some say 4 just in case one doesn’t “count”) different letters showing that you have paid perfectly typically for the last 12 months.  Some say letter of credit when they ask for it from their insurance or utility company.  Either way, the idea is to show you were never late of those bills in the past year.

Don’t despair!  Prepare to be pleasantly surprised if you don’t have any credit.  While some of these things can be done while you are in the home mortgage loan process, it’s so much better to have it all lined up for your favorite loan officer ahead of time… 🙂

Beware of credit disputes!

Some less than reputable and some who claim to be a legal entity companies recommend disputing everything negative on your credit report.  This is in the attempt to bring a credit score higher by any means possible.  Beyond the moral implications of saying that items aren’t yours that really are, there are other reasons to beware of credit disputes.

1. Most mortgage loans require that there are no disputed credit accounts on the borrowers’ credit reports.  The clearing of these credit disputes can take weeks, considering it often involves contacting all 3 credit bureaus.  And guess who suddenly isn’t available to help?  The companies that initiated the disputes in the first place on your behalf.  Most customers are left with the help of their willing mortgage loan officer or on their own.
2. Credit disputes artificially inflate a credit score.  They cause a credit bureau to “ignore” those disputed items, thus increasing hypothetically the score as if those items did not exist.  No one has the exact formula, and typically it appears that not everything is included in this exemption, but you can quickly see that a small credit score boost might appear like the credit dispute is working, when it really hasn’t.
3. The very idea of a credit dispute is logistically near impossible.  You have 3 credit bureaus to remove an item from typically.  The very possibility that all 3 will overturn a reported item seems unlikely.
4. More importantly, without your actual intervention, providing proof that an item is not really yours is being reported truly incorrectly, what likelihood do you think that an item will disappear and never reappear on 3 different credit bureaus?  The original idea of a dispute was to provide the evidence that it was in fact incorrectly reported.  An example is a collection that was paid, or a collection that is truly not yours.  It is not for sweeping up legitimate accounts and that’s why it was designed to be so difficult, otherwise, someone could simply dispute and wipe out most bad credit.
5. A mortgage lender (and other creditor that examines closely disputes) will not simply go with the artificially inflated score.  It will likely be exposed that the true credit score and the actual correct items will be exposed.  Escaping from the reality or worse, believing the artificially inflated score,

Since this is written from my perspective, as a mortgage loan officer, I understand that it may seem to discourage credit disputes.  In no way do I want to discourage legitimate disputes, but the pain that a dispute can cause afterward when you apply for a home mortgage loan, might make you want to think twice whether disputing every negative item on your credit report is really worth it in the long run.