Before Buying Your First Home…Read This!

Are you one of the many Millenial Americans dreaming of Buying Your First Home, but don’t quite feel ready? People delay homeownership for many reasons; some are unsure where to settle down, some have poor credit and fear they won’t get approved. As a Mortgage Loan Officer, I understand that every person has a different path to homeownership. If you foresee a home purchase in the next few years, now is the best time to start preparing, and I’m here to help!
Just as with any project, your preparation will set the stage for your success. Think of your First Home Buying experience as your largest personal project yet!

Step One: Identify Your Goal
*Phew*, that one was easy! You’ve already completed step one, your goal is to purchase a home.

Step Two: Research
Have you made a choice about where you’d like to live? Researching towns is an important part of the process. You will want to evaluate average home prices for the neighborhood, consider potential property taxes, crime rates, and school ratings, and, more personally, determine the proximity to amenities that are important to you.

Step Three: Set a Timeline
Just like registering for a race inspires a runner to kick start their training, establishing a home buying timeline can help a prospective homebuyer kick start their preparation! Most importantly, be sure to set a realistic and achievable goal. If your aim is to purchase a home within two years, think about what you will need to do over the next 24 months to make that a reality. Are you allowing enough time to improve your credit score? Is there enough time and money each month to save for an ideal down payment?

Step Four: Take Action
With a prospective closing date in mind, do your best to stay on track toward your goal:
•   If you haven’t yet, you should check your current credit score. It is wise to figure this out as soon as possible. Once you know, you will be able to see where you need to do work to improve it. Whether it is paying down credit cards, or enlisting the help of a credit repair service, your credit score is crucial to the mortgage application process. It is best to start preparing now!
•   It is wise to start saving what you can, even though there are loan products that offer little or no down payment options. Remember that there will be closing costs, moving expenses, as well as repairs and furnishings to include in your budget. For a goal of collecting $20,000 over the next two years, you would need to save $833 each month. If you can’t find room in your budget to set that aside every month, consider extending your timeline a bit longer. If someone in your life will be gifting you funds to assist in the home purchase, try to discuss what that amount will be, so you can adjust your own savings plan accordingly.
(If you plan to use gifted funds, you will need to have a gift letter documenting it; as your Mortgage Loan Officer I will be happy to assist you with preparing one.)

Step Five: Talk to your Mortgage Loan Officer
Following these preparatory steps, you will be in a good place when you are ready to start the official home buying process. When the time is right, reach out to Me to talk about your mortgage options and to take advantage of my FREE Jumpstart Mortgage Pre-Approval service.

Credit Dos and Don’ts During the Mortgage Process

A good credit score is critical when it comes to obtaining the best interest rates and terms on a mortgage. Here are some Credit Dos and Don’ts when looking for a mortgage.

♦   Do Stay Current on All Existing Accounts. One 30 day notice can hurt you.

­♦   Do Continue to Use Your Existing Credit As Normal. If it appears your are changing your pattern, it will raise a red flag and your score could go down.

♦  Don’t Apply for New Credit. Every time you have your credit report pulled by a potential creditor or lender, you can lose ponts on your credit score. This includes co-signing for a loan.

♦  Don’t Pay-Off Old Collection Accounts or Charge-Offs. Talk to your loan officer first. Yes, you are liable for these debts, but now might not be the time. If you must pay-off these old debts, do it through the closing process of your mortgage. Be sure to request a “letter of deletion” from the creditor.

♦  Don’t Close Credit Card Accounts. When you close an inactive credit card account, it may appear that your debt ratio has gone up. Closing a card will affect other factors in the score, including credit history.

♦  Don’t Max Out or Over Charge Credit Card Accounts. Don’t make any large purchases. Keep your credit card balances at 30% of your credit limit before and during the application process. If you do pay down balances, do it equally across the board.

♦  Don’t Consolidate Your Debt. When you combine all your balances into one or two credit cards, it will appear that you have “maxed out” on that card and you will be penalized.

­♦   Do Call Your Loan Officer. Talk to you Loan Officer before taking any action that may possibly affect your credit score.

Positive and Negative Affects on Your Credit Report in 2015.

While it is important to know what helps to build a good Credit Score, you also have to know what hurts your Credit Score.
Your Credit Score is a very important factor when it comes to your family finances.  Lenders use credit scores to determine the risk of lending money to a given borrower. It is important for getting approved for the best terms and interest rates on a Mortgage Loan. Insurance companies, landlords, and potential employers also look at your credit score to see how financially responsible you are.
Why not make a New Year’s resolution to improve your Credit Score in 2015?

Negative Affects on Your Credit
♦ Payment History: There are many factors that can negatively affect your credit score; your payment history is one of them. Have you paid your bills late or missed payments? If you have, how late were you? The later you are with your payments, the worse it is for your credit score. Also, any charge offs, debt settlements, foreclosures, bankruptcies, wage attachments, suits, liens, or judgments against you are some of the worst things to have on your credit report.
♦ High Credit Card Balance: Using more than 80 percent of your total amount of available credit is another factor that lowers your credit score. Having a high credit card balance or maxing out your credit cards increase your credit utilization (the ratio of your credit card balances to credit limits listed on your credit report) and decreases your credit score.
♦  Requests for New Lines of Credit: If you have recently opened several new accounts, you could be a greater credit risk. People tend to open new lines of credit when they are experiencing cash flow problems or are planning to take on a lot of new debt.
♦  Closing Unused Credit Cards: The unused credit accounts are contributing to the amount of credit you have available. You will want to show that you are not using all your available credit. Pay them off, cut up the card, but don’t close the account. Once you close out those credit accounts, you will suddenly have less credit available.
♦  A Greater Number of Inquiries: The more times you apply for a credit card, shop for for a better deal on a car loan, even switch cell phone providers, the more inquiries will show up on your credit report, raise the question of financial responsibility and decrease your credit score.

Positive Affects on Your Credit
♦  Paying Bills on Time and in Full: Have you paid your bills on time for each and every account on your credit report? The longer you pay your bills on time, the more your score should increase. 
♦  Using Less of Your Available Credit: Keep the balance you owe on your credit card to 25 percent or less of your available credit line. For example, you should carry a balance of no more than $2,500 if your credit limit is $10,000.
♦  Paying Off Debt: This is a lot easier said than done, but the more you pay your debt back, the more your credit score will increase.
♦  Steady Employment: People who have steady employment are viewed as being better at paying their bills on time.

Bottom Line: Your Credit Score plays an important role in your finances. As long as you are being responsible with your money, your credit score will reflect it.

Review Your Credit Report Annually
It’s smart to stay on top of your credit report, and to know what potential mortgage lenders will see. You can request a FREE Annual Credit Report from each of the 3 major credit reporting agencies – Equifax, TransUnion & Experian once a year at www.AnnualCreditReport.com

Your Credit Score and Your Mortgage Application

Your Credit Score is the most obvious factor in your ability to getting your Mortgage Application approved. The higher your score, typically the less risk you pose to lenders and the lower your mortgage interest rate. So how is your credit score determined? And how can you improve it?

Your Credit Score is based on the following 5 factors:
1. Your Payment History. (35% of your score)
♦ Your payment history shows whether you make your monthly payments on time, how often you might miss making your payments, how many days past due the due date you eventually make your payments, and how recently your payments have been delinquent.
♦ How To Improve It: Make all your monthly payments on time. The more payments you pay     promptly, the higher your score. Each time you miss a payment, you risk losing valuable points on your score.

2. Amount Owed on Loans and Credit Cards.(30% of your score)
♦  Your score is also based on the entire amount you owe, the number and types of credit accounts you have, and the proportion of money owed compared to how much credit you have available.
♦  How To Improve It: Smaller balances on your credit cards can raise your score – if you pay on time. High balances and maxed out credit lines will lower your score. Keep your credit card balance to less than 30-50% of your credit line.
New loans with little payment history may drop your score temporarily because your report will show the recent inquiry into your report to obtain the new debt.
Loans that are closer to being paid off can increase your score because you have a longer track record of paying the installments on time.

3. Length of Credit History. (15% of your score)
♦  The longer you can show a history of meeting your obligations in a timely manner, the higher your score will be.
♦  How To Improve It: This simply takes time. No credit or no no recent credit is not necessarily a good thing. It may seem wise to avoid using credit, or to avoid applying for credit, but it can actually hurt your score if mortgage lenders have no credit history to review.

4. Types of Credit Accounts.(10% of your score)
♦  A mix of credit accounts is best.
♦  How To Improve It: If you only have one type of credit account, add another type when it makes financial sense to do so. A mix of car loans, personal loans, retail store accounts and major credit cards will improve your score – if you manage them wisely and make the payments on time.

5. Recent Credit Activity. (10% of your score)
♦  Steady credit activity is best.
♦  How To Improve It: If you’ve opened a lot of accounts recently, or applied to open new accounts, it suggests potential financial trouble and can lower your score. The lender will see the inquiry on your report and require a letter of explanation as to why you opened these accounts and whether there are balances  that haven’t shown up on your report yet.
However, if you’ve had the same accounts for some time and you repay them on time – even after some payment troubles – your score will eventually go up.

Review Your Credit Report Annually
It’s smart to stay on top of your credit report, and to kow what potential mortgage lenders will see. You can request a FREE Annual Credit Report from each of the 3 major credit reporting agencies – Equifax, TransUnion & Experian once a year at www.AnnualCreditReport.com

Review your reports carefully, as each one may contain inconsistent information or inaccuracies. You have the right to dispute any error by contacting the agency with in 30 days of receiving your report.

My Credit Scores Aren’t Great! I Don’t Have a Lot in Savings! Can I Still Get a Mortgage?

I don’t have a lot of savings! My credit scores aren’t great! Can I still get a mortgage? The answer is YES! Let’s talk about your situation.

If you think having financial problems will stop you from buying a home, think again! Believe it or not, it may not be as difficult as one may think to purchase a home with less than perfect credit. Here are some common financial problems – and some smart solutions that may help you purchase your new home this spring!

General Tip – Work With a Professional Mortgage Broker
Getting a mortgage is an expensive proposition. – and without guidance from a qualified professional you could pay substantially more than necessary. If you’ve got financial issues, going to a regular bank might not be the right solution for you. You may be a square peg that doesn’t “fit” into their square boxes of credit guidelines. Instead, you should work with a Mortgage Broker who has established direct relationships with numerous lenders who offer a a wide range of mortgage options.
Why? Well, if you work with them directly, mortgage brokers might be able to direct you to a lender who will make exceptions to the standard underwriting guidelines. For example, I’m working with lenders who  consider a borrower with a DTI higher than 43%; and a lender who will accept  applications from borrowers with a 580 credit score.

Problem #1 – High Debt-To-Income Ratio (DTI)
If you’ve looked into getting a mortgage, you may have heard the term “DTI.” Just what  is DTI and how does it impact your ability to get a loan?
DTI is your debt-to-income ratio – a percentage calculated by dividing all your current debt payments plus what the new mortgage will cost you every month by your gross monthly income. The new “ability to repay” rules mandated by the CFPB in January 2014 limit the borrowers to a maximum 43% DTI. The higher the DTI, the higher the risk of non-payment and the harder it is to qualify for a mortgage. If it exceeds 43%, traditional banks will probably decline the request.
Solution: You have to reduce your monthly payments.A good place to start is your car. I’m working with borrowers now who pay $600 per month in car payments. What’s done is done, but instead of financing those fancy new car a few years back, they might have considered buying a good used with substantially lower monthly payments. The cars are in good shape,have low mileage, so I suggested that they apply at their credit union for a loan to refinance their car loans for 24-36 months to lower their payments. I could argue that it’s best financial decision, and of course they could still make the former payments, but their DTI ratio would improve to a point where they could obtain a mortgage.

Problem #2 – Low Credit Score
A borrower’s credit score is the single most important snapshot of your credit risk by reporting the payment history on all your credit accounts. Lenders perceive a low credit score as a high credit risk and this could negatively impact your odds of being approved for a loan. And if you still qualify for a loan, a low credit score could still cost you. The lower the credit score, the higher the perceived risk and the higher the interest rate to compensate for that risk.
Solution: Get copies of your credit report. Go to www.annualcreditreport.com. the Only Website Authorized By Law to Provide a Free Annual Credit Report. Then discuss your findings with your mortgage broker ask him which areas need improvement. Work with someone you feel is honest, helpful, and has your best interests in mind. In addition to reviewing your overall credit situation, be sure to continue to make all payments on time; pay your credit card balances below your 50 percent of your approved credit line. These steps alone will help show the credit agencies that you’re a better credit risk and help improve your scores. Caution: Do not clear up active collections against you without discussing the ramifications with your mortgage broker.

Problem #3 – Low Down Payment
A major factor deterring home buyers today is saving the cash for the down payment on a home, the closing costs, and still having a few dollars left over in reserves.  This is where your mortgage broker and your Realtor, working in tandem, can help.
Solution: Depending on your situation, you might be able to find a way to buy a home with a low down payment and still preserve your hard earned savings. There are a number of strategies and loan programs that help you get closer to your home ownership dreams.
• Conventional Loan: If you have a fairly good credit score, you might be able to qualify for a mortgage with a down payment as low as 5 percent. The lower the score the minimum down payment may increase to 10%.
• FHA Loan: The Federal Housing Administration (FHA) loan option might be the right choice if you have a low credit score limited cash.  With an FHA loan, the minimum down payment is 3.5% even if you credit score is in the 620 range. Some lenders will work with a borrower with credit scores down to 580 with overlays to compensate for the perceived risk of default. It doesn’t hurt to talk to your mortgage broker about both these options.
• USDA Loan: In my opinion, the USDA Guaranteed Rural Housing Development Loan program is the best deal in town for those with limited savings. It offers 100% financing for eligible properties in USDA approved communities. Closing costs can be rolled into the loan amount when the appraised value exceeds the contract sales price. There is no limit on gift funds or seller concessions
• VA Loan: The Veterans Affairs (VA) loan has similar criteria as the FHA loan. But it’s targeted to serve toward past or present military personnel. Veterans may also be able to purchase a home with no down payment through a VA loan.
• Seller Concessions: In certain negotiations, the property owner may be willing to entice eligible buyers to purchase their home by offering to contribute up to 3-6% of the contract price toward the buyers closing costs. It’s important to talk to your mortgage broker and your real estate agent about this option. It’s also important for the buyer to understand that they “can’t have their cake and eat it too.” Buyers can’t expect to offer less than the listing price and still ask for concessions. You may have to pay full price and then hope the seller will take less for the property.
•  Gift Funds: Funds for the down payment and/or closing costs can be gifted to the borrower from a close family member. It is important to discuss this possibility with your mortgage broker as different loan programs have different limitations on how much the borrower must contribute to the transaction and how much can be gifted. Sourcing the receipt of gift funds, especially wedding gifts, has been a problem for 15 years. DO NOT deposit gift funds into any account without talking to your mortgage broker.
•  State-Sponsored Down Payment Assistance: Another option for borrowers are down payment assistance programs sponsored by certain states, municipalities, and non-profit organizations. They may be offer to teachers, police and firemen who plan to live in their city and/or earn below a certain income level. These programs may be limited to first-time homebuyers. Check with a broker who specializes in these types of programs.

Summary: Low credit scores and/or lack of funds may be just a bump in the road to owning your own home. Talk to your mortgage broker about what it takes to get Pre-Approved for a Mortgage and how to get over these hurdles.

 Still Have Questions or Concerns?
Call Me at 860.945.9284 to discuss the right mortgage option for your family and to take advantage of my FREE Mortgage Pre-Approval service. Then you  can call your agent to schedule a showing and be ready to make an offer.

With today’s attractive rates, and my direct relationships with trusted lenders who offer a wide range of affordable mortgage programs, you just might be able to move in with a minimal down payment and low closing costs

Why Do Mortgage Rates Go Up and Down?

During every conversation with a new client, the question always comes up: So what are your interest rates?
My stock answer is usually: “Mortgage rates are subject to change on a daily basis and can change again at any time during the day depending on changes in market conditions. Typically, a borrower’s rate cannot be “locked” until a complete application file has been submitted to a lender for review. Any rate quoted today may or may not be what can be offered at that time.”
Granted, that is a pretty simplistic answer to a very important question. I am prepared to answer it in more detail because it does not really answer the underlying question of: What Are the Market Conditions That Make Mortgage Rates Go Up and Down? 

The Stock Market
This is the easiest benchmark to follow. In general … What’s good for your 401k is not good for mortgage rates.When the stock market indexes go up, mortgage rates typically go up. When the
When the stock market declines, investors are looking for a safer place to put their money. Mortgage Backed Securities are one of these places. When the demand for these bonds goes up, so does the price. When the price of MBS increases, mortgage rates typically go down.
Conversely, when the stock market increases, investors pull their money out of the bond market causing prices to drop. As prices of MBS drop, the market has to pay a higher return to retain investors and mortgage rates will increase.
Economic Data    Mortgage Rates reflect the relative strength or weakness of the overall economy on a daily basis. Rates will go up if the unemployment rate goes down and there is a better than expected economic data. Rates will go down if jobs and manufacturing is stagnant or on the decline; and when housing reports are weaker than expected.
Inflationary Pressure    Low interest rates depend on low inflation. High inflation causes wages and prices to rise and the cost of borrowing to get more expensive. Good news for the economy is often bad news for Mortgage Interest Rates.
The Federal Reserve    By controlling the flow of cash through the economy, the Fed attempts to keep inflation under control. The Fed’s bond-buying stimulus package added cash into the monetary system in hopes of creating a looser credit environment and an attempt to stimulate the economy with low borrowing costs aka mortgage rates. Their decision to pull money out of the system by pulling back on this package indicates they feel the economy is expanding and they anticipate inflation in the coming months.
Geo-Politics    Investors turn to the U.S. markets when things go wrong in their part of the world. The relative stability of our financial markets provides a “safe haven” for their money in times of global crisis.So when you watch TV and see acts of terror or conflicts in the Ukraine, you might see Mortgage Rates go down. However, if there are reports that China’s economy is improving or Mid-East tensions are easing. Mortgage Rates can be expected to go up.
Other World Events    Let’s talk about the weather! What’s bad for the world is good for mortgage rates. Tsunamis in Japan, earthquakes in South America attract investors to our markets for safety. This flood of money puts upward pressure on bond prices and push mortgage rates down. A serene weather picture around the world could push rates up.

Now I’m just a small broker doing what’s right for my clients. I’m not an economist, nor do I have a crystal ball that enables me to tell anyone where mortgage rates are heading in 2014. But I have been challenged by senior bank executives across this country to look at the big picture when making small decisions that affect peoples’ lives. As my testimonials will confirm, all I can promise is that I will do my best to provide my clients with the Right Mortgage at the Right Rate for thier family situation.

Something Other Things To Consider.
In addition to market conditions, any borrower’s interest rate is determined by many other factors including: type of loan, loan program, loan purpose, down payment or equity, and credit score. The interest rate one sees in newspaper articles is available to borrowers seeking a conventional mortgage with a 740+ credit score, have a 20% down payment or equity in their home, probably pay 1 point and is able to pay all closing costs. If a borrower’s real life situation differs from any of these criteria, lenders will perceive this as additional risk in the application and adjust the interest rate accordingly.

Late Mortgage Payments Compared To Delinquent Credit Cards

I’ve been working with a client for almost a year now attempting to refinance their mortgage and save them a considerable amount each month. The challenge has been low credit scores due to delinquent credit card payments.

Recently, the clients called to say they listened to my advice. Their credit cards were all up-to-date. With current low rates and increasing values, it seemed that now was the perfect time to revisit their plans.
They had my checklist of documents we’d need to begin the mortgage process and agreed that the best place to start was with a new credit report.

I was quite surprised to discover that their credit was even worse. The borrower was correct… all his credit cards were up to date. The big problem was they had been paying the mortgage payment 30 days late for the last 4 months. They got caught up on their credit cards by being delinquent on their mortgage payment. Not a good idea!

Now we’ll have to wait another 12 months. Hopefully  all payments will be made on time next year and by then their credit scores will have recovered to a point where it makes sense to refinance.

Remember… pay mortgages first, car payments second, installments debts next and then credit cards. For excellent credit scores ALL payments need to be paid on time.  

Why Are Some Mortgage Applications More Successful Than Others?

Every mortgage application has a life of its own. Some live a long time, some not so much. I just closed on a loan that took less than 4 weeks to complete. And I just re-opened a file that started in June and still may not close until the end of October. So what makes some transactions more successful than others?

Here are some factors that will make the application process take longer?
• Resolving Credit issues
• Income verification issues
• Property condition and Home inspection issues
• Home Value and other Appraisal issues
• Not getting all the necessary documentation in a timely manner
• Sourcing the monies to be used for the down payment and closing costs (this is the big one)

And here are the factors that will make the application go quicker?
• Strong credit
• Sufficient income and strong reserves
• No issues or minor home inspection issues.
• No issues with the appraisal
• Borrower co-operation in delivering all necessary supporting documents at time of the application

 It is my responsibility as a professional Mortgage Officer to set the expectations for my client…the borrower. I take the time to educate my client on each step in the mortgage process, what I will do for them and what they must do to help make the application move along as smoothly as possible. Perhaps it’s my teaching background that helps the borrower understand whether their application will pass or fail. With good information there is better opportunity for everyone to  succeed.

Identity Theft Victims Must File Police Report

A First Home Buyer was referred to me by a local realtor to be Pre-Approved for a mortgage. To make a long story short, the buyer came to America a several years ago. He worked hard, saved his money, established a small credit history and then went back to the old country to get married. While he was gone, his roommate cleaned out his savings and ran up his credit cards to take off for parts unknown. Although the buyer tried to do what he thought was right, the accounts were turned over to collection agencies. He was the Victim of Identity Theft
Today, the borrower is self-employed with tax returns that show good income,  a growing family, enough in savings to put a 20% down payment on a $200,000 home, and a low credit score.

The credit repair company I work with tells me that even if he makes a settlement with these creditors for debts he did not incur,  history of these derogatory accounts will show up on his report for 7 years.
According to the  Federal Trade Commission …  Victims of identity theft need to file a  comprehensive police report to assert their federal rights and recover from the crime. In my client’s case, this is the only way he can remove these accounts from his credit report. 

Why Victims Need To File a Police Report
Under the Fair Credit Reporting Act (FCRA), a detailed police report is required before victims can claim certain rights under federal law. By law, the report must specify which accounts and information on the credit report resulted from the identity theft. A detailed police report:

• Helps victims clear their credit reports of any negative information that resulted from identity theft — such as bad debts — and avoid the long-term effects of a poor credit score, such as being refused new credit or insurance or paying higher interest rates.
• Helps victims keep fraudulent debts from reappearing on their credit reports or ending up in the hands of a new debt collector.

Identifying the accounts resulting from identity theft is necessary to set in motion a chain of events:

• the credit reporting agency removes all fraudulent debts from appearing on the credit report, and the credit score is restored;
• the credit reporting company notifies any businesses holding those fraudulent accounts that the accounts result from identity theft.
• The business cannot continue to report them to the credit reporting company. 

Writing the Report the Easy Way
The Federal Trade Commission Identity Theft website makes it easier for victims to gather all  the required information for their police report. The FTC’s On-Line ID Theft Affidavit gathers all of the victim’s information that the law requires. The form can be attached to the police report. Victims can then send copies to the credit reporting companies and businesses involved to take advantage of their FCRA rights.

Identity Theft is a serious crime that can wreak havoc with your finances, credit history, and reputation — and can take time, money, and patience to resolve. My client has been approved for a mortgage, but it’s going to more expensive than we thought. It’s now his choice to buy the house before the school year starts, or make the effort to restore his good name. Whatever he decides to do, I’m here to help.

Mortgage Rates Continue to Fall at Unprecedented Rate

Mortgage Rates begin the week at new all-time lows. And this is after last week’s previous all-time lows.  Rates are incredible …
  •   Conforming 30-year fixed rates for borrowers with a 680 credit score and an 85% LTV are in  the mid-3.0% range. 15 year conforming rates are now below 3.00% 
  •   30 year FHA insured rates for borrowers with a 640 credit score and a 3.5 % down payment are in the low 3.00% range.

Even at these low rates, some lenders are willing to contribute a point or more to the borrowers closing costs.

Call Me today at 860.945.9284 to review your mortgage options.
Purchase or Refinance… I’m here to help.

Trying to decide whether to lock or float your rate; go to http://www.mortgagenewsdaily.com/consumer_rates/275768.aspx