Our credit is a magical and delicate thing that can be thrown off balance very easily. Qualifing for a mortgage post "economic major meltdown circa 2008 - present" has become a bit tougher and credit scores are more important than ever when it comes to getting a loan to buy a house.
Please let me apologize in advance for my potential overuse of capital letters in this post. That said--I do want the following 10 titles to read like I am screaming at you. IT'S THAT IMPORTANT!! I WANT TO SAVE YOU FROM YOURSELF!!! :)
1. DON’T DO ANYTHING THAT WILL CAUSE A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
2. DON’T APPLY FOR NEW CREDIT OF ANY KIND. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. Depending on the elements in your current credit report, you could lose anywhere from one to 20 points for one hard inquiry.
3. DON’T PAY OFF COLLECTIONS OR CHARGE OFFS during the loan process. Unless you can negotiate a delete letter, paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through escrow – at closing.
4. DON’T MAX OUT OR OVER CHARGE ON YOUR CREDIT CARD ACCOUNTS. This is the fastest way to bring your scores down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. Meaning, pay balances to bring your balance to limit ratio to the same level on each card (i.e. all to 30% of the limit, or all to 40% etc.)
5. DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in 4. If you want to save money on credit card interest rates, wait until after closing.
6. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account, you will lose available credit, and it will appear to the FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you HAVE to close a credit card account, do it after closing.
7. DON’T PAY LATE. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late can cost you anywhere from 50-100 points, and points lost for late pays take several months if not years to recover.
8. DON’T ALLOW ANY ACCOUNTS TO RUN PAST DUE --EVEN 1 DAY! Most cards offer a grace period, however, what they don’t tell you is that once the due date passes, that account will show a past due amount on your credit report. Past due balances can also drop scores by 50+ points.
9. DON’T DISPUTE ANYTHING ON YOUR CREDIT REPORT once the loan process has started. When yousend a letter of dispute to the credit reporting agencies, a note is put onto your credit report, and when the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removedand new credit scores are pulled. Why? Because in some instances credit scoring software will not consider items in dispute in the consider items in dispute in the credit score - giving false data to the lender.
10. DON’T LOSE CONTACT WITH YOUR MORTGAGE & REAL ESTATE PROFESSIONALS. If you have a question about whether or not you should take a specific action that you believe may affect your credit reportsor scores during the loan process, your mortgage or real estate professional may be able to supply you with the resources you need to avoid making mistakes that could drop your credit scores or possibly, cause you to lose the loan.
Friday, March 4, 2011
It's time to think about refinancing your home loan IF:
• rates are 2% + lower than your current rate
• you are paying mortgage insurance and you have 80% equity in your home,
• you’re current loan is an ARM and your term is up and your rate is looking at resetting
And most importantly ---only refinance if you are planning on sticking around in your home for at least 2 years post refi.
Here are some more things to consider when thinking about refinancing:
Four Reasons to Refinance Your Home
There are many situations where refinancing a mortgage is a good decision. It can save your house, save you money, or help you with other financial needs. Read on to learn the four reasons to refinance your home.
1. Avoid Foreclosure with a Refi
If you are on the brink of foreclosure and are desperate to save your home, refinancing may be the answer for you. Whenever you are having trouble paying your mortgage, it is always a good idea to approach your lender and discuss the issue with them. They may be open to helping you through a refi. This can help you lower your current interest rate, lock in a fixed rate, and/or change the length of the loan. This can lower your monthly payments and make your mortgage more affordable, helping you avoid foreclosure. You can also talk with other lenders or mortgage brokers to see if they have programs available for you. The biggest obstacle in this situation is going to be whether you have enough equity in your home. If you do not, you need to talk to your lender and review your options.
2. Changing an ARM to a Fixed Rate Mortgage
Maybe you are not on the brink of foreclosure, but you do have an adjustable rate mortgage (ARM) whose rate is going to increase in the near future, making it harder for you to afford your mortgage. Many people are solving that problem by refinancing their homes to get a fixed rate, so they no longer have to worry about when and how much the rate on their mortgage will increase. This can help you avoid financial trouble before it starts.
3. Saving Money When You Refinance Your Home
Not everyone who refinances a home does it because they are experiencing some sort of financial trouble. Usually, refinancing is an effective way to save money on your monthly payments. For the same reasons that it can help people avoid foreclosure, it can help you save money by lowering the interest rate, lengthening the term of the mortgage, locking in a fixed rate, or paying off other higher-interest rate debt.
4. Getting Money Out of Your Home
Another reason to refinance is to get money out of your house, which is known as a cash-out refinance. This type of refnance allows you to access the equity in your house to use that money for other purposes. Many people do this to pay off other high-interest debts they may have. It is also a very popular choice for finally doing those improvements around the house. Of course, any time you take equity out of your house, you want to make sure you assess any possible risk involved and confirm that you are not putting your house in jeopardy.
Two Reasons Not to Refinance a Home
A refinance is not an easy fix to complicated problems, nor is it an ATM for making unneeded purchases. As with anything relating to mortgages or your house, you need to be smart about a refi and know when it is not the right decision.
1. When a Refinance Does Not Save You Money
Lower rates do not necessarily mean that a refinance will save you money. You need to thoroughly assess the situation and evaluate how much you will save, if anything. It is important to remember that with any mortgage, including the one you are about to refinance, there are always fees involved, such as closing costs. These can add up to several thousand dollars, which can prevent the refinanced loan from saving you money. You also need to consider how long you plan to stay in that specific house. If you plan to move in the near term, a refi may not save you money. Talk to a mortgage professional or trusted financial planner if you are not sure where you stand.
2. Cashing Out for Frivolous Purchases
We all would love to go on a two-week Caribbean vacation or buy the luxury or sports car we have always dreamed of driving, but using a cash-out refi for such purchases is not a very smart choice. Once you get into the habit of using your mortgage as a way to pay for things you can not really afford, you run into the danger of going into debt you cannot handle or losing your home. Using equity for home improvement projects can increase the value of your house. Using equity for luxury purchases saps the value from your home.