Mortgage Everett: How Is Your Credit Score Calculated Part 1 of 2

 FHA Mortgage, Mortgage Everett, Real Estate Agents, VA mortgages  No Responses »
Oct 302009
 

Mortgage Everett: How Is Your Credit Score Calculated

Part 1 of 2

Things you should know if you are thinking of applying for a mortgage or any type of credit for that matter. There are 5 components that make up how your credit score is calculated. Each has a certain weight given to it, they are:

  • Payment history 35% of you credit score
  • Debt 30% of you credit score
  • Length of credit history 15% of you credit score
  • New credit 10% of you credit score
  • Type of debt 10% of you credit score

Your credit scores start at 850 and goes down from there. If you can fog a mirror you will have at least a 350 score. Each of the 3 bureaus, Transunion, Equifax and Experian have a different way to calculate your scores. Each uses a different model. Transunion uses FICO, Equifax uses Bacon and Experian uses Fair Isaac. Each uses what is called different algorithm (that’s a fancy word for formula) to arrive at a score. Therefore each bureau will come to slightly different score for the same person. Also not every business uses all three bureaus so there will be different scores for the same person.

Payment History (35%): How do you repay your debts? When was your last late payment? Obviously the fewer lates you have and the older they are the better. Avoid “rolling” lates. This is where you miss a payment and then make your regular payment but that late just keeps rolling over. Call your creditor and work that out.

Debt (30%): What type of debt do you have? There are only 3 type’s debt and they are installment, revolving and mortgage. Revolving debt is the only debt that really causes problems. Since revolving debt is critical to maximize your score never charge more than 30% of your credit limit. Points are taken from your score as you gradually approach 90% of your credit limit. After 90% you lose all points available. Cap One was the subject of a class action law suit because they always reported your card at its limit. If you charged $357 they would report your limit as $357. This hurt every Cap One card holder. They would not change this practice until they lost a court case. Watch your reporting date. If you wanted to improve your score make your payment before and get it credited prior to the accounts reporting date. Let’s say you were at 638 and you needed to be at 640+. See more in part 2 of Mortgage Everett: How is your credit score calculated.  You will find more helpful tips on my blog at Everett Mortgage on Line.

Twitt
 Posted by JAJohnson at 11:26 am

Mortgage Everett: How Is Your Credit Score Calculated Part 2 of 2

 FHA Mortgage, FSBO, Mortgage Everett, Real Estate Agents, VA mortgages  No Responses »
Oct 302009
 

Mortgage Everett: How Is Your Credit Score Calculated

Part 2 of 2

Debt (30%): Continued:  If you made your payment before the reporting date that would give you the extra 3 points you would need fro that score. If you have old delinquencies it may not help you to make payments on them. This is because if you don’t pay it off completely the old late payments become current and now your scores get dinged because now it a current late. If you pay off old delinquencies demand a Letter of Deletion. A Letter of Deletion removes that line of bad credit completely from your credit report. Watch for old collections and the statue of limitations. If the debt is more than 7 years old (most debts but not all) it must be removed. A common practice of debt collectors is to try a change that date to when they bought the debt. This is illegal.

Length of Credit History (15%): You might think that opening up a new line of credit would help your score. Watch out it can actually hurt you a great deal. Say you have a 3 year clean history with one account. Today you open up another account at a local department store. You suddenly have a 1.5 year clean history because they will average your history over the total open accounts. That could cause you to drop 10-15 points in one moment.

New Credit (10%): Every time you shop for a better deal, say on a car, your score is dinged 2-3 points. If the dealer sent your deal to several banks then each one dings you 2-3 points. Just stopping at one car dealer can cost you 20-30 points in less than an hour.

Type of Debt (10%): They are looking for a good mix of all three types of debt.

The way the various parts play against each other creates a dynamic and that creates your scores. It is a complex system that can be used to improve your scores but I suggest you hire a good professional to do that. I have several professionals that I refer my clients to. Remember that the FHA mortgage is not score driven but the better your score the better chance you have of getting a loan. You will find more helpful tips on my blog at Everett Mortgage on Line.

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 Posted by JAJohnson at 11:21 am

Homes for sale Everett: What is the best way to buy a home today

 FHA Mortgage, FSBO, Homes for Sale Everett, Real Estate Agents, VA mortgages  No Responses »
Oct 262009
 

Homes for sale Everett: What is the best way to buy a home today

In the “old” days a home buyer was required to have 20% for a down payment. Then in the 1950’s along came mortgage insurance offered by a company called MGIC. They pioneered the MI industry. If you had less than 20% down they offered a kind on mortgage insurance to insure the lender that if you defaulted the lenders loss was covered. The way it worked was simple. The less you put down the higher the insurance premium

charged. The buyer was required to keep certain ratios to qualify. This meant the buyer bought less of a home because part of the monthly payment was for MI. This was pure gold for the American dream. It allowed for the present liquidity in the real estate market. Without MI selling a home would take far longer because there would be far fewer buyers.

Fast forward to today. If you are a veteran you qualify for a VA mortgage. The VA mortgage is the only true ZERO down loan available today.

If you are not a veteran the next best way is an FHA mortgage. The FHA mortgage requires a minimum of 3.5% down. Currently the First Time Home Buyer Credit is 10% of the purchase price up to $8000. So you can actually buy up to $228,571 and have a ZERO down purchase. But there is a bit of a catch. You have to have the 3.5% first, buy the home and then file for the tax credit. The federal tax form you file is form 5405. The credit is refundable so even if you didn’t pay taxes you can still get the credit. In some states there are various funds where a qualified buyer can get a “loan” for the down payment and then buy. Check with your local mortgage broker to see if you live in a state when that option is available.

Currently the First Time Home Buyer Credit is set to expire after November 30, 2009. Senator Bill Nelson (D) a member of the senate finance committee says the credit will be extended for a limited time. But no extension has reached the floors of either house yet.

Every mortgage loan is very important to me, so I handle each one personally. My background includes extensive knowledge of the real estate market, real estate finance and personal taxation. If you are looking to refinance or purchase real estate please give me a call or email. I will be happy to discuss all options with you. Currently I have access to 70+ lenders. I have access to 4 different credit repair agencies. My goal is to become your lifetime lender. thefhaloanguy@aol.com

Twitt
 Posted by JAJohnson at 3:03 pm

Homes for sale Everett: Shadow inventory of homes will delay recovery

 FSBO, Homes for Sale Everett, Real Estate Agents  No Responses »
Oct 242009
 

Homes for sale Everett: Shadow inventory of homes will delay recovery

How will the shadow inventory effect homes for sale in Everett? First let’s define what a shadow inventory is. Shadow inventory is bank owned residential property that is not on the market. This is also called the REO (real estate owned) inventory.

Now some facts:

Zillow says the up to 31% of current home owners would sell if the market price came back. If all these homes were placed on the market right now they would depress the market prices all over the nation.

The Wall Street Journal and Bank of America say there are between 3-4 million homes held as REO property right now. With foreclosures up 12% over last year but inventories in the top 28 markets in America are down. Nobody really knows why.

It is estimated that 60,000 to 65,000 Option Adjustable Rate Mortgages will be coming due every month for the next 2 years. The Option ARMs are loans where the borrower can pay less that the full payment. Almost all of these homes will be upside down in equity. That means they will owe more than the home is worth.

Now for my speculation: What if the banks have used TARP money to avoid puting the REO inventory on the market? By putting the REO inventory on the market the bank must recognize the loss. It would depress the market for a while but in a little time the market would adjust and recover. I think many banks have used TARP money to pay bonuses and salaries and avoid painful loss recognition. Japan just went through 20 years of economic downturn because they woiuld not recognize the losses on the balance sheets of their banks. Recognizing the losses would have meant loss of face. Are the bankers of America doing the same thing but using tax dollars to fund this?

Every mortgage loan is very important to me, so I handle each one personally. My background includes extensive knowledge of the real estate market, real estate finance and personal taxation. If you are looking to refinance or purchase real estate please give me a call or email. I will be happy to discuss all options with you. Currently I have access to 70+ lenders. I have access to 4 different credit repair agencies. My goal is to become your lifetime lender. thefhaloanguy@aol.com

Twitt
 Posted by JAJohnson at 3:11 pm

Mortgage Everett: How to repair your credit for better rates

 FHA Mortgage, Real Estate Agents, VA mortgages  No Responses »
Oct 232009
 

Mortgage Everett: How to repair your credit for better rates

The FHA mortgage doesn’t go by credit scores, or does it? While HUD does not link an FHA mortgage to your credit scores most lenders will. The reason lenders don’t follow the FHA mortgage rules refer back to the “investor” who will buy the loan. Some simple but effective methods to improve your credit score are as follows. First contact any accounts that you dispute late payments with. Sometimes you can get a late notice removed simply by asking. Next pay down your credit cards and other revolving debt to about 1/3 of the credit limit. You need to have credit and you need to use it. You should have a small balance. The scoring algorithms of the bureaus suggest that a 1/3 balance or less, of your credit limit, maximizes your score. Now you don’t have to pay all of them down but select a strategic few and target those for pay-down. This usually takes less than 30 days. If more repair is needed then do as follows. Challenge letter need to be made for all negative credit entries on your credit report. Send these letters to each bureau with details on why you think the entry was incorrect. The bureau must ask each credit vendor if your challenge is correct. The vendor must respond within 30 days of your inquiry. Repeated challenges can wear out credit vendors. Some will miss the 30 day deadline and others will simply not spend the time to respond. This method will take longer but will result in higher credit scores and a cleaner credit report.  Right now applicants for FHA mortgages, make that all mortgages, need to be aware that your credit should be kept as clean as possible.

Every mortgage loan is very important to me, so I handle each one personally. My background includes extensive knowledge of the real estate market, real estate finance and personal taxation. If you are looking to refinance or purchase real estate please give me a call or email. I will be happy to discuss all options with you. Currently I have access to 70+ lenders. I have access to 4 different credit repair agencies. My goal is to become your lifetime lender. thefhaloanguy@aol.com

Twitt
 Posted by JAJohnson at 12:19 pm
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