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Credit

Your credit payment history is recorded in a file or report. These files or reports are maintained and sold by "consumer reporting agencies" (CRAs). One type of CRA is commonly known as a credit bureau. You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history. It also indicates whether you have been sued, arrested, or have filed for bankruptcy.
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as your bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit report. Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who will most likely repay a debt. A total number of points -- a credit score -- helps predict how creditworthy you are, that is, how likely you will repay a loan and make the payments when due.
The most widely used credit scores are FICO scores, which were developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).
* There are different FICO Scoring Versions (Mortgage uses FICO 4). While banks and other credit sources provide what they label your FICO score, it typically is not the same version, and that score can vary, usually higher than your FICO 4 score.
Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate before you submit a credit application. To get copies of your report, contact the three major credit reporting agencies:
• Equifax: (800) 685-1111
• Experian (formerly TRW): (888) EXPERIAN (397-3742)
• Trans Union: (800) 916-8800
You are entitled to receive one free credit report every 12 months from each of the nationwide consumer credit reporting companies — Equifax, Experian, and TransUnion. This free credit report may not contain your credit score and can be requested through the following website: https://www.annualcreditreport.com
ICredit scoring models are complex and often vary among creditors and for different types of credit. If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors considered by the model. Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application.

Nevertheless, scoring models generally evaluate the following types of information in your credit report:

Have you paid your bills on time? Payment history typically is a significant factor. It is likely that your score will be affected negatively if you have paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.
What is your outstanding debt? Many scoring models evaluate the amount of debt you have compared to your credit limits. If the amount you owe is close to your credit limit, that is likely to have a negative effect on your score.
How long is your credit history? Generally, models consider the length of your credit track record. An insufficient credit history may have an effect on your score, but that can be offset by other factors, such as timely payments and low balances.
Have you applied for new credit recently? Many scoring models consider whether you have applied for credit recently by looking at "inquiries" on your credit report when you apply for credit. If you have applied for too many new accounts recently, that may negatively affect your score. However, not all inquiries are counted. Inquiries by creditors who are monitoring your account or looking at credit reports to make "prescreened" credit offers are not counted.
How many and what types of credit accounts do you have? Although it is generally good to have established credit accounts, too many credit card accounts may have a negative effect on your score. In addition, many models consider the type of credit accounts you have. For example, under some scoring models, loans from finance companies may negatively affect your credit score.
Scoring models may be based on more than just information in your credit report. For example, the model may consider information from your credit application as well: your job or occupation, length of employment, or whether you own a home.

To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and not taking on new debt. It's likely to take some time to improve your score significantly.
www.myFICO.com
Go to Education Drop Down Menu at the top.
Hard vs. Soft Credit Pulls — A hard inquiry does hit your credit report and triggers credit bureau lead generation, which means you will start receiving phone calls and mail solicitations. A soft pull is not shared information. If you are not moving forward with a loan immediately, you could use a soft pull to provide the lender with preliminary credit information.
The lender may use the report for 120 days from the date pulled to the closing date.
On new construction, sometimes 180 days is allowed.

Closing Costs

Lender Charges:
Origination Fee – For processing the mortgage application, there may be a flat fee or a percentage of the mortgage loan.
Credit Report – Most lenders require a credit report on you and your spouse or an equity partner. This fee is often a part of the origination fee.
Points – One point is equal to 1% of the amount borrowed and can be payable when the loan is approved, either before or at closing. Points can be shared with the seller, which is negotiable in the purchase offer. Some lenders will let you finance points which will add to the mortgage cost. If you pay the points up front, they are tax deductible in the year they are paid. Different deductibility rules apply to second home loans.
Lender's Attorney's Fees – For your attorney to draw up documents and ensure the title is clear and for representation at the closing.
Document Preparation Fees – There are several documents and papers prepared during the home-buying process ranging from the application to the closing. Lenders may charge for this, or the fees may be included in the application and/or attorney’s fees.
Preparation of Amortization Schedule – Some lenders will prepare a detailed amortization for the full term of your mortgage. This is usually done for fixed mortgages or adjustable mortgages.
Land Survey – Lenders may require that the property be surveyed to ensure it has not been encroached on and to verify the buildings and improvements to the property.
Appraisals – Professional Appraisers can compare the value of the property to that of other recently sold neighborhood properties. Lenders want to be sure the property is worth the value of the mortgage loan.
Lender's Mortgage Insurance – If your down payment is 20% or less, many lenders require that you purchase Private Mortgage Insurance (PMI) for the loan amount. If you should default on your loan, the lender will recover their money. These insurance premiums will continue until your principal payments, plus the down payment, equal 20% of the selling price and may continue for the life of the loan. The premiums are usually added to any amount you must escrow for taxes and homeowner's insurance.
Lender's Title Insurance – Even with a title search for any property obstacles, liens, or lawsuits, many lenders require insurance to protect their mortgage investment. This is a 1-time insurance premium usually paid at closing and is for the lender only, not the homebuyer.
Release Fees – If the seller has worked with a contractor who put a lien on the house and is expecting payment from the proceeds of the house sale, there may be fees to release the lien. The seller usually pays these fees which could be negotiated in the purchase offer.
Inspections Required by Lenders – The lender may require a Termite Inspection if you apply for an FHA or a VA mortgage loan. In many rural areas, a water test may be required to ensure the well and water system will maintain an adequate water supply to the house; for quantity, not quality. Depending on the sales contract and property type, additional inspections may be required.
Prepaid Interest – The first regular mortgage payment is usually due 6-8 weeks from closing; however, interest costs begin at closing time. The lender will calculate the interest owed for that period of time, and that fraction of interest is sometimes due at closing.
Escrow Account – Lenders often require that you set up an Escrow Account, where you will make monthly payments to for taxes, homeowner's insurance, and sometimes PMI (Private Mortgage Insurance). The amount placed in this account at closing depends on when property taxes are due and the timing of the settlement transaction. The lender can give you a cost approximation during the application process for your mortgage loan.
Third-Party Charges:
Attorney Fees – You may want to hire an attorney when purchasing a home. They usually charge a percentage of the selling price up to 1%, or some work hourly or for a flat fee.
Title Search Costs – Usually, your attorney will perform or will arrange for the title search to ensure there are no obstacles, such as liens or lawsuits regarding the property. Or you may work with a title company to verify a clear property title.
Homeowner's Insurance – Most lenders require you to prepay the first year's premium for homeowners insurance, sometimes called hazard insurance, and must show proof of payment at the closing. This ensures the investment will be secured even if the property is destroyed.
Real Estate Agent's Sales Commission – The seller pays the real estate agent's commission, and if one agent lists the property and another sells it, the commission is usually split. The commission is negotiable between the seller and the agent.
Statutory Costs:
Transfer Taxes – Required by some localities to transfer the title and deed from the seller to the buyer.
Deed Recording Fees – To pay for the County Clerk to record the deed and mortgage and to change the property tax billing.
Pro-Rated Taxes – Property taxes may need to be split between the buyer and the seller since they are due at different times of the year. For example, if taxes are due in October and you close in August, you would owe taxes for 2 months, and the seller would owe for the other 10 months. Pro-rated taxes are usually paid based on the number of days, not months, of ownership. Some lenders may require you to set up an escrow account to cover these bills. If not, you may want to set one up yourself to ensure the funds are set aside for these important expenses.
State & Local Fees – Other state and local mortgage taxes and fees may apply.
Other Up-Front Expenses:
The major portion of other up-front expenses is the deposit or binder you make at the time of the purchase offer, the remaining cash down payment you make at closing, or can include:
Inspections – Lenders may require inspections, and you can make your purchase offer contingent on the satisfactory completion of some other inspections such as structural, water quality tests, septic, termite, roof, and radon tests. You and the seller can negotiate these inspection fees.
Owner's Title Insurance – You may want to purchase title insurance in case of unforeseen problems so you don't owe a mortgage on the property you no longer own. A thorough title search ensures a clear title.
Appraisal Fees – You may want to hire an Appraiser either before you sign a purchase offer or after reviewing the lender's appraisal report.
Money to the Seller – You'll need to pay for items in the house you want that were not negotiated in the purchase offer, such as appliances, light fixtures, drapes, lawn furniture, or fuel oil and propane left in tanks.

Moving Expenses – If you are changing jobs, your new employer may pay for your relocation. Otherwise, you must figure in the moving costs, such as truck rentals, professional movers, and cash for utility deposits like telephone, cable, electricity, etc.
Repair Expenses – In the purchase offer, you can request that the seller set up an Escrow Account to defray any costs for major cleanup, radon mitigation procedures, house painting, appliance repairs, etc. Depending on the purchase offer contract and contingency clauses, you may discover that you have expenses upon moving in.
Example: Your purchase offer contract has a clause making the purchase contingent on a satisfactory structural inspection, and it’s determined that the house needs a new roof. You can negotiate to have the seller arrange for the work to be done but this will delay the closing date. You may have to agree to a higher price for the house or pay some of the new roof repair expenses. Or you and the seller may split the cost using estimates from a contractor of your choice, and each of you will put funds into an Escrow Account. Or, the seller may be willing to reduce the sale price of the house, but either way, cash will be needed for the new roof.
Time Investment – One often overlooks major up-front costs in buying a home. The time and expenses invested in house-hunting, which can take up to 4-months, plus the time spent searching for the best mortgage for you, the right real estate agent, an attorney, and other related things that take up your valuable time.
Option 1
- Provide a lender credit to offset the number of closing costs.
- This is done by a higher interest rate which may or may not be right for you.
Option 2
- Roll the closing costs into the loan amount.
- You are then financing them and paying interest on that amount for as long as you keep the loan.
When does it make sense?
- If you will not stay in the home or keep the loan for a long time
- If you don’t have the money for closing costs or it depletes your savings by doing so.
- Can this money be used more productively elsewhere? (Invest, pay off other debt, savings, etc.)
It is not uncommon when you are buying a new construction home that a builder may offer a closing cost incentive. Typically they will require you to use their in-house lender, or a list of approved lending partners. The incentive may be coming directly from the builder, the lender, or a combination of both. This is an attractive option and can help with reducing what you have to bring to closing and may appear to reduce costs associated with the loan. However, there is no free money and it is important to fully understand the details of the offer and to make sure that it is truly better than what you could secure with an outside lender.

Builders may have a preference for using their own lender(s) partially because it gives them confidence that the home buyer's loan will close since they know the entity providing the financing. If they have their own lending affiliate, they profit from the transaction.

The details should outline the dollar amount they will cover and what can be covered as this has to be applied to allowable closing costs/settlement charges. The verbiage is also important in that it may state that they will cover "up to" a specific dollar amount. You will want to be careful if this is the case in making sure that you are able to apply the full amount based on what your anticipated settlement charges are. If there is a surplus, you cannot received this back as cash at closing. However, there may be other ways to address this such as a principal curtailment to the loan, or if there are costs such as inspections or a survey related to the purchase that can be applied. Sometimes the builder will cover attorney fees if you use their preferred attorney regardless of weather you use their lender or not.

What is most important for you to know is that the lender cannot bump your interest rate up to cover the cost of the incentive. If they say they are offering $2,000 in lender paid closing costs, they must be able to offer you that with their closest to PAR interest rate (closest to PAR means the rate that is closest to zero points charged). If the builder is the one paying the credit, they cover this cost but it may be in their overall cost structure. In this case, the lender should still in good faith offer you a closest to PAR rate as well as the options for paying points or receiving a lender credit.
The advantage to a home buyer with the builder paid closing cost incentive is that it can limit your out of pocket funds due at closing. For a buyer that may be tight on funds, this could be important. You should also know that an outside lender could provide you the option of a higher interest rate with a lender credit to be applied to closing costs as well. This is still worth considering because if an outside lender can provide you a lower interest rate than the builder's lending partner with giving you a lender credit that at least covers the builder incentive, then you should be receiving a better option.
Example: Builder's Lender - 3.875% with $2,000 in closing cost incentive
Outside Lender - 3.75% with $2,000 lender credit applied to closing costs
⇒ Lower Rate covering the same amount in closing costs!!!
Make sure you compare Apples-To-Apples
The Real Estate Settlement Procedures Act (RESPA) contains information regarding the settlement or closing costs you are likely to face. Within 3 business days from the time of your mortgage application, your lender is required to provide you a "Loan Estimate" which is an estimate of settlement or closing costs based on their understanding of your purchase contract. This estimate will indicate how much cash you will need at closing to cover prorated taxes, first month's interest, and other settlement costs.
TRID is an acronym that stands for TILA-RESPA Integrated Disclosures. (TILA is the Truth in Lending Act, and RESPA is the Real Estate Settlement Procedures Act.) It's a federal consumer-protection law that requires lenders to disclose certain types of key information to borrowers. Additionally, strict adherence is required on fees with zero and 10% tolerance limits to changes by fee type to protect consumers from unexpected higher costs. There are also timing requirements for disclosures at the time of application and pre-closing to provide borrowers with adequate time to make decisions.

Appraisals

An Appraisal is an estimate of a property's fair market value. It's a document generally required (depending on the loan program) by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The Appraisal is performed by an "Appraiser" typically a state-licensed professional who is trained to render expert opinions concerning property values, its location, amenities, and physical conditions.
Regulations dictate that appraisal must be non-biased and cannot be influenced by an interested party such as your mortgage officer or lender. Many lenders utilize Appraisal Management Companies (AMCs) which are a third party that facilitates the appraisal process and selection of the appraiser is through a rotational system. Banks may have their own internal AMC, but this must be a department independent of the loan origination staff and must include a rotational assignment process.
Not if it is for a loan that ties to conventional or government underwriting standards. This would be considered biased because you would be making the appraiser selection.
A typical appraisal report may range between an average of $650 - $850. However, there may be additional costs specific to the type of loan or property type. For example, an investment property may require additional reports to include an Operating Income Statement or Comparable Rent Schedule which may run another $150/each. New construction homes may require a Final Completion Certification in which the appraiser returns to the property to certify the home has been completed. This typically is in the $150.00 range.
Appraisal reports must follow lending guidelines with strict parameters around what comparable sales are used, the distance and similarity to the subject property, the age of the comp (within last 12 months) and many other factors. Even after a report is received, it is reviewed by a Quality Control team and then by underwriting. Lenders use the lower of the sales price or appraised value. If the value comes in lower than the sales price, this results in buyer and/or seller having to make up the difference and is typically resolved through negotiations.
If there is disagreement in the results of a report and the comps that were used, most lenders offer an appraisal appeal process. Substantial data must be provided in the form of alternative comparable sales or documentation of missing information about the property that was not considered by the appraiser. The appraiser reviews the information provided and solely reserves the decision in determining if a change in value is warranted. It is important to note that an appraisal is intended to protect the buyer and lender from an overvalued property.
An Appraisal waiver is sometimes available (both purchases and refinances) based on an automated evaluation sysem that reviews data based on recent home sales in the area where the property is located. The system determines if the stated value or purchase price is a reasonable estimate of a property's fair market value and a lender's associated risk. Multiple factors may be considered in this model to include the Loan-To-Value of the home as well as borrower credentials. If this options is available, it saves you the cost of the appraisal, time involved for completing the report allowing you to close faster, and eliminates the risk of an appraisal receiving a low opinion of value.

Private Mortgage Insurance (PMI)

On a conventional mortgage, when your down payment is less than 20% of the purchase price of the home mortgage lenders usually require you get Private Mortgage Insurance (PMI) to protect them in case you default on your mortgage. The typical mortgage insurance premium is paid through what is called Borrower Paid Monthly. A monthly fee is charged and included in your mortgage payment calculated by how much of a down payment you contribute. Once the loan has been paid down to 80% of the original value, the borrower may request removal of PMI. If the borrower does not make this request, regulations requires that it is automatically removed when the loan-to-value reaches 78%. Certainly, you don’t want to wait and need to make that call!
There are other options for mortgage insurance such as Lender Paid and Financed. These should be reviewed with a mortgage professional to determine if it makes sense based on your circumstances.
If you pay down your loan amount to 80% after your original closing, you may request removal. This sometimes occurs due to a buyer selling their previous home and wanting to use those proceeds to bring down their loan balance on the new loan.
You may request consideration of PMI removal if you believe your home value has increase enough that you would be lower than 80% of the new value. The lender would require a new appraisal at your expense through their internal department to support this claim. If the appraisal does not support the claim, the fee is non-refundable. There may also be terms for making this request by the mortgage insurance company such as the PMI having to be in place for a minimum period before this is allowed such as 1 or 2 years.
It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.
It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Refinancing

This boils down to what is the benefit?
If it is for a lower rate, you must calculate the cost of the refinance to determine your monthly savings but also how long the initial up-front expense takes to recoup. For example, if it takes you 5 years to recoup the expense before you benefit, and you move or refinance prior to that time, you never reaped the reward.
Consider your need and if you need cash out, how much will you need and how soon can you pay it off. If it is a smaller amount, could a home equity line of credit be a better choice due to lower closing costs? If you cannot pay it off quickly (3-5 years), then maybe it makes sense to put it into the longer term mortgage.
This is a basic refinance in which you are trying to obtain a lower rate or shorten the term of your loan. Payoff your current mortgage with a net tangible benefit such as a better rate, lower payment, shorter term, etc. Fannie Mae allows for you to get the lesser of 2% or $2,000 back at closing. Freddie Mac allows the greater $2,000 or 1% back at closing.
This option is when you are using the equity position you have in your home to take additional money out in the form of a new loan. This could be for a wide variety of reasons to include obtaining money for a down payment on another property, debt consolidation, a business venture, paying off a spouse due to divorce for their share of the property, consolidating a second mortgage (equity loan) that may have originally been used to purchase the home, etc.
Consolidating a home equity line of credit into the new mortgage is considered Cash-Out unless it was used for the original purchase of the home and not modified in any way since that time (it would be considered a rate/term refinance if this applies). The interest rate offered on a cash-out refinance will be higher than a rate/term refinance due to lenders considering it a riskier transaction. It will also have lower Loan To Value allowances such as 80% of the home value. Lower loan to values will offer better pricing/rate offerings. For example, a 75% Loan To Value will offer you significantly better terms than 80% and should be considered if this meets your needs.
Pay down the principal on your current loan with a one-time significant contribution and have the monthly payment adjusted accordingly. Retain your interest rate and term and avoid closing costs associated with a traditional refinance. Lender-specific terms apply — typical cost averages $250.00. If this option works for you, it saves you considerably due to not having the fees associated with refinancing.

Foreclosure

It's when a homeowner is unable to make principal and/or interest payments on their mortgage. The lender, a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.
Unfortunately, Foreclosure can happen. By missing a mortgage payment, your lender has the legal means to repossess your home and force you to move out. If your property is worth less than the total amount you owe on your loan, a Deficiency Judgment could be pursued. A Foreclosure and a Deficiency Judgment can affect your ability to qualify for credit in the future. So you should avoid foreclosure, if possible.
First of all, if you are struggling to make your payments, call or write to your lender's Loss Mitigation Department right away. Explain your situation and be prepared to provide them with financial information, like your monthly income and expenses. Just follow these three simple rules:
1. Contact your lender as soon as you know your payment will be late.
2. Never ignore the lender's letters or phone calls.
3. Don't assume that your situation is hopeless.
Your lender will determine if you qualify for the following alternate solutions. Also, a housing counseling agency can help you with your options, plus interact with your lender on your behalf:

Mortgage Modification – If you can currently make your regular payment, but can’t catch-up on the past due amount, the lender may agree to modify your mortgage. One way is to add the past due amount into your existing loan and finance it long-term. Mortgage Modification may also be possible if you no longer can make your payments at the former level. The lender may modify your mortgage and extend the loan length, or perhaps take steps to reduce your current payments.

Pre-Foreclosure Sale – Foreclosure can be avoided by selling your property for a lesser amount necessary to pay off your mortgage loan. You may qualify if:

The loan is at least 2 months delinquent
The house is sold within 3-5 months
A new appraisal, that the lender will obtain, indicates that the home value meets program guidelines.
Deed in Lieu of Foreclosure – This is when the lender allows you to give-back your property and forgives the debt. It does have a negative impact on your credit record; however it's better than foreclosure. The lender may require that house be "For Sale" for a specific time period before agreeing. This route may not be possible if there are other liens against the home.

For FHA Loans – The lender may assist you in getting a one-time payment from the FHA Insurance Fund. The homeowner must prove the ability to resume making full mortgage payments on time, and other conditions apply:

A Promissory Note must be signed allowing HUD to place a lien on your property for the amount received from the FHA Insurance Fund.
The note is interest free, but must be repaid eventually.
The note becomes due when you pay off the loan, transfer title, or sell the property.
For VA Loans – The Veteran's Administration Loan Centers offer financial services designed to help homeowners avoid Foreclosure, and options for your specific situation.
Reinstatement – This is possible when you are behind in payments but can promise to pay a lump sum of money to bring your regular payments back by a specific date.
Forbearance – It may be allowed to delay payments for a short period with the understanding that another option will be used to bring the account current later.
Repayment Plan – If your account is past due, but you can now make regular payments again, the lender may allow you to catch up by adding a portion of the overdue amount to a certain number of monthly payments until your account becomes current.
Partial Claim – Your lender may be able to help you obtain a one-time payment from the FHA Insurance Fund to bring your mortgage current if you qualify:
You may qualify if you can begin making full mortgage payments again.
When your lender files a Partial Claim on your behalf, the U.S. Department of Housing & Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the note is fully paid. The note is interest-free and is due when you pay off the first mortgage or when the property is sold.