Mortgages and Financing

Credit Healthy – Credit Scores, Lenders, and Pre-Approval Letters

July 1, 2019 by Joyce Marie Jackson Leave a Comment

Agent Joyce Marie Jackson returns for another installment in her “Credit Healthy” series with information about the all important pre-approval. A very important step in the process of buying a home, a lender’s pre-approval relies on several factors, including your credit score. Let’s hear from Joyce…

Too often, people are more interested in their credit score than what’s in their credit report. The truth is a person can have a good credit score and still not qualify for a loan or credit card for a number of reasons. This concern opens the door for one of the most important questions a Realtor will ask a potential buyer, “are you pre-approved?” This important question may cause a buyer to stop communicating with the Realtor…for some misunderstood reason, for some buyers, the question seems offensive and invasive.

If it was asked incorrectly, I understand. However, it is one of the most necessary questions a Realtor will ask a buyer in addition to asking if you are already signed with another Realtor. Too often a person pulls their credit history and gets their credit scores through a number of sources for free or a small fee. The scores that come with this type of report may show credit scores at a higher number than what a lender will pull. It is frustrating trying to understand why the scores are so different. More to the point, why are the Lender scores usually much lower than what the buyer can pull independently?

There are a few reasons why. Most lenders will pull the FICO (Fair Isaac Corporation) score and there are several types of FICO scores: FICO Auto Score (250-900), FICO Bank Card Score (250-900), and FICO Mortgage Score (300-850). Other types of FICO scores vary: FICO 5, FICO 2, FICO 4, FICO 8, and FICO 9 all exist. They are similar and different. In addition, all lenders may not use the same FICO score algorithm. The FICO score will consider more of your debt than other types of credit scoring systems.

Once a lender receives your three credit scores, lenders have a formula that they use to determine your final score. One example could be, from three credit bureau, your scores were 730, 685, and 710. The highest and lowest score is knocked out. The middle score will stand as the winning number, 710.

With other types of scoring systems such as Vantage, all debt may not be included therefore resulting in a higher credit score.

These are just a few reasons why your free credit scores may be higher than the one the lender will pull. So, what should you do? You can still get the credit report and use it to clean up anything that is not yours or should not be there. Once you’ve done the credit clean up, then allow a lender to pull your report and provided you with the scores that will be used to qualify you to purchase your home. The Lender will go over the report with you and provide tips if needed to help boost your score. After the lender receives requested documentation, verifies employment, and the credit score is right, you will receive a pre-approval letter naming the amount you can purchase at. Sounds like a plan. So, the next time a Realtor asks if you are pre-approved, don’t let that question scare or stop you from moving forward. Knowing the answer to that question will open the door for a successful home buying adventure.

image courtesy of karmadude

Credit Healthy – Build It Right From Ground Zero

June 5, 2019 by Joyce Marie Jackson Leave a Comment

When it comes to buying a home, few things are more important than your credit. The better it is, the more buying power you have. In this article the first is a series of posts entitled “Credit Healthy,” agent Joyce Marie Jackson breaks down your credit score and takes a look at what it takes to build your credit health from the bottom up. Whether you’re a first time homebuyer or this is one of many purchases you’ve made in your lifetime, it pays to understand what goes into your credit score so you can be prepared when it comes time to buy. Enough from us…we’ll let Joyce take it from here…

Too often a buyer is so excited about buying a home, the basics are forgotten.

You’ve saved some money, that’s good, and maybe paid down some of you debt. Your lease is coming to an end soon, so I guess it’s time to shop for a home. Is that it or are there other steps?

Here’s an option:

Contact your financial institution and inquire if they offer a credit score and/or monitoring plan for free or for a small fee. You may ask yourself, “Why do I need to do this?”
The reason is because before you can start a plan, you must know where you stand. Knowing what’s in your credit report is the first step in identifying the health of your credit worthiness.
Your credit worthiness is what a lender will use to approve or disapprove you for a mortgage loan. It’s all in the report, but it’s up to you to make sure it’s accurate.
Know how your FICO score is determined.

35% – Payment History – Always make your payments on time.
30% – Amounts Owed – Knowing your credit limit is key. The amount you owe and the amount your have available will determine your utilization ratio and debt ratio.
15% – Length of Credit History – The age of an account is important. The longer you have a particular credit card, the better. If you decide to pay it off, that’s great! Just don’t close it out. Closing out a credit card that you’ve had for a long time can lower your credit score.
10% – Type of Credit Used – Similar to building your retirement portfolio, your credit should also contain a mixture of different types of credit, such as credit cards which are usually revolving credit, fixed loans, and other mixtures of credit.
10% – New Credit – New credit and the available amount. Don’t max it out.
So, 35+30+15+10+10 = 100% of your FICO score.

List your expenses, make a budget and track your spending.

You’ve identified what’s in your credit report and taken steps to make the report accurate. You know what makes up a credit score and what parts you may need to work on in order to increase it. Saving is also key and must be part of the budget. In addition to having a great credit score and low to no debt, there is still a need to have available funds for various buyer expense such as inspections, appraisal, earnest money, option money, closing costs, and down payment. Sounds scary and it can be, but if you are prepared it will be less stressful. Does this mean buyers have to have perfect credit and be debt free before they should purchase a home? No, it just means that the more you know and the better prepared you are, the better your home buying experience will be. So, “Build It Right from Ground Zero.”

image courtesy of zeevveez

VA Loan Minimum Property Requirements (MPRs)

October 26, 2016 by khproperties Leave a Comment

VA loan minimum property requirements (or MPRs as they are often known) are specific guidelines issued by the Department of Veterans Affairs covering specific aspects of a home necessary for the home to be eligible to be purchased with a VA backed mortgage. The general basis for the VA loan minimum property requirements is that the property should be free of any hazards that might hurt the occupants or prevent them from normal enjoyment and use of the property. If the home does not meet these minimum property requirements, the VA will not guarantee the loan and the home will either need to be brought up to speed to meet these requirements or the VA will not guarantee the loan, effectively ended the purchase.

An Overview of VA Loan Minimum Requirements

The following list of VA loan minimum requirements is a general overview and is not meant to replace the guidelines issued by the VA. Contact your lender or the VA for a list of current guidelines and requirements.

Space Requirements – The home must have suitable space for living, sleeping, cooking/dining, and sanitary facilities (bathrooms).

Mechanical Systems – Mechanical systems must be safe to use, protected from any potential destructive elements, fit the needs of the home for capacity and quality, and have reasonable future usage.

Heating Systems – The home’s heating system must be adequate for health and comfort of the occupants. Special rules apply to wood burning stoves.

Water and Sanitation – Home must have available hot water and safe drinking water. This VA also requires a safe method of sewage disposal.

Roofing – Roofing must be free of leaks and possess a reasonable future life span. Special rules apply to replacing defective roofs with multiple layers of shingles.

Crawl Spaces – Crawl spaces must be accessible, free of debris, and properly vented. Moisture or pooling of water must be corrected.

Electricity – Home must have electricity for lighting and necessary equipment such as heating and cooling systems.

Access – Home must be accessible from a public or private street and the living spaces must be independent of any others (no shared/common living spaces). General access rules require that the home’s various spaces should be accessible without entrance through another’s living spaces. Homes must have access to exterior walls for the purpose of maintenance.

Health and Safety Hazards – Probably the broadest of the VA loan minimum property requirements, this section covers the health and safety of the occupants. Homes should be free and clear of anything that could be seen to adversely affect the health and safety of the occupants, the structural integrity of the home, or keep the owners from use and enjoyment of their property. These requirements cover everything from defective conditions of the property and drainage to wood destroying insects and lead based paint.

Manufactured Homes – Manufactured homes must be attached to a permanent foundation.

The overall goal of the VA loan minimum property requirements (MPRs) is to ensure the general safety of the veteran while using their property and that the basic needs of housing are met. Most of the requirements are basic human needs and are common with any government backed loan or assistance programs. If a home does not meet these minimum requirements, the buyer can negotiate with the seller to try and cure the defects and the lender will require evidence that they have been taken care of before fully approving and moving forward with the loan. This can be a bit of a paperwork and document nightmare for those involved, but with a bit of determination, it can be done.

Have questions about real estate specific to your needs as a veteran? We have many agents that specialize in helping veterans with their housing needs, both for lease and for sale – whether temporary housing during training or more permanent housing after being stationed in the area.

image courtesy of DVIDSHUB

How Credit Can Affect Your Ability to Buy a Home

February 24, 2016 by khproperties Leave a Comment

Credit is the one word we can think of that no one really likes. People with good credit, people with bad credit – everyone gets a little nervous when they think about the magical number determined by a secret algorithm that sums up your entire financial life in one go. The FICO credit score, the defacto standard for scoring your financial well being, is shrouded in myth and mystery and affects just about everything you do in life. And when it comes to real estate, your score is one of the biggest determining factors in whether you’ll be renting or buying your next home. So what can you do to keep your score healthy and happy so that you can move into home ownership? While there is no perfect answer for everyone, there are certain items you should be aware of that will help keep those numbers up so that you can buy a home.

Paying your bills on time. We all slip from time to time and forget to pay a bill by its due date. Whether it’s because you just didn’t have the money until a few days after the due date or it simply slipped your mind, you need to pay your bills on time. Banks look to this factor to see that you have the discipline and structure to keep up with payments. Not only does it affect your credit score, but when a lender looks at your full credit report and sees consistent or frequent late payments, they start to wonder if you’re a credit risk. The website Credit Karma shows that people with fair to excellent credit scores pay their bills on time more than 95%. As credit scores go down, so does the rate of on time payment – FICO scores of 500-599 report 75% on time payment rate, while scores under 500 report 60% on time payment rates.

Debt to income ratios. You debt to income ratio is the balance of what’s coming in and what’s owed. Have large debts and a small income? Not good. How do you figure out your ratio? Take the total of your monthly debts (rent/mortgage, car payments, credit card payments, other loans, etc.) and divide it by your gross (not net) monthly income. Convert the decimal to a percentage (move the decimal two places to the right) and you now know your debt to income ratio. All lenders differ on what they look for, but most avoid anything over 30% and 40% is considered very high. The higher that ratio goes, the higher the risk for you to repay the loan you’re trying to apply for.

Credit Cards vs. Mortgage Debt Although it won’t help the first time home buyer, having a mortgage can actually be a boost to your credit. Things like student loans and mortgages are often weighted differently because of their purpose, whereas credit card debt can be seen as a negative, because we use those to buy things without any real value. That’s not to say that credit cards are bad, you just have to be careful how you use them and how many and how much you have available.

Speaking of credit cards… There are a couple of issues with them that you’ll need to watch out for. First, don’t max them out. Second, don’t have too much or too little credit available. Third, you want to have a strong history with those credit cards, from paying them in a timely fashion and not carrying a large balance to not coming near your spending limits. Credit card debt is one of the trickier items to understand, because each piece of the puzzle affects the larger whole.

Cash. Having a reserve fund can help balance things out when you sit down with a lender. Not only will you need cash for your down payment, but lenders want to see reserve funds so that you can weather any bumps in the road ahead. Cash can sometimes make up for slightly lower credit scores as well.

Your Credit Score is a Complex Thing

These are just some of the issues affecting your your ability to get a loan to purchase a home. The best way to really understand your personal situation is to sit with a local lender and have them take a look. Not only will they pull the report and ask questions about your income and debts, but they will also take a look at the entire picture as a whole in order to come up with the best plan of action for you. Sometimes it makes sense to wait, sometimes you’re ready then and there, but they can help give you the info and knowledge you need, plus they can help you see some of the things you could do to improve your credit score for both the short and long term that could help get you to where you want to be.

If you need recommendations for a quality, local lender who can analyze your situation and build an action plan for you, contact and one of our agents and they can help you find the lender that best suits your needs.

image courtesy of Jigme Datse

Loan Underwriting Doesn’t Need To Be A Complete Mystery

December 22, 2015 by khproperties Leave a Comment

If you’ve ever bought a house, you’re probably familiar with hearing “your loan is in underwriting” and then playing the waiting game until it “comes out of underwriting.” It’s one of the steps in the process of getting a loan and often one of the most frustrating. But what exactly is underwriting?

Underwriting is viewed as a mystical place where loans go somewhere between the time of preapproval and final issuance of the loan documents. Underwriters are kept in secret and you’d be surprised to know that many real estate agents have never met an underwriter face to face (or if they did, they didn’t know it). Loan underwriting is truly a world shrouded in mystery and for good reason – if we all knew our underwriters, it would be very easy for agents to poke and prod an underwriter to get things done. Underwriters would be under a daily assault of phone calls from agents trying to find out where they were in the process and in effect, would be rendered unable to do much more than answer the telephone. This is why lenders keep them locked away in dark caves in highly classified locations.*

Merriam-Webster Online Dictionary defines underwriting as follows:

underwriting – transitive verb
4 a : to agree to purchase (as security issue) usually on a fixed date at a fixed price with a view to public distribution b : to guarantee financial support of (underwrite a project)

What’s Taking So Long? Underwriting.

To put it simply, the underwriter looks at all the supporting documents and says “yes, I think this is a safe loan to make, let’s do it.” Of course they can say the opposite too. This is how some people get preapproved, yet wind up getting turned down for a loan. The underwriter is pretty much all powerful when it comes to you getting your loan. Because of their ultimate power, you and your real estate agent need to pay special attention during the underwriting process.

It all boils down to this: if the underwriter asks for something, you as a homebuyer, better do it. They will ask for ridiculous things at times. Doesn’t matter. They’ll ask for copies of things you’ve sent them four times already. Doesn’t matter. They’ll ask you to move a comma in a sentence in a document you have sent to them. Doesn’t matter. They’ll ask for more information on something you’ve already documented to death. Doesn’t matter. Underwriting is about the lender covering all their bases – all that documentation you send in stays in a file and if something ever goes wrong (you default on your loan), the investor will want the lender to justify their underwriting of the loan.

Underwriting can be a nightmare for a homebuyer (and a seller as well – the longer underwriting takes, the more nervous they become), but by being proactive and jumping through the hoops, you can get your loan in and out much faster and save some of the headaches caused by underwriting. Typically, your agent will also know what the underwriter needs to complete their job, so they may bug you about it too – the key? Get it done. Right away. Don’t put it off and don’t frustrate yourself with trying to find the answer to “why are they asking for this?,” they have their reasons and it doesn’t really matter what they are (although we can discuss them to death, the underwriter will still want them).

Of special note: it pays to have a local lender for your loan, because they often have better, more direct contact with their underwriting departments and can often help a file through the process by being able to have direct access to the underwriter should a problem arise. With some of the larger banks, their loan processing centers might be halfway across the country and you lose that personal one-on-one interaction between your loan officer and underwriter that can help get things done.

* We have no actual proof that lenders keep underwriters locked in caves or that underwriting is actually an ancient mystic art involving a combination of wizardry and voodoo.

image courtesy of GotCredit

Tapioca Pudding or a 15 Year Mortgage? Which is better for you?

October 13, 2013 by John Alaniva Leave a Comment

Is a 15 Year Mortgage the Right Choice?

So, right off the bat you must be thinking – what on earth can 15 year mortgages and tapioca pudding possibly have in common? And you’re right – at first glance there isn’t much, but as you dig deeper the similarities will surprise you.

Tapioca pudding is a sweet pudding desert thickened by man-made tapioca pearls. Tapioca does not occur naturally, but must be processed from cassava root. Most recognizable are the tapioca pearls that are a staple in both tapioca pudding and in the increasingly popular Bubble Tea. Tapioca has been around for quite some time and was quite popular in the 18th and 19th centuries, particularly because the starchy tapioca pearls were an easy thickening agent and partly because they were easy to digest. Often, they were prescribed to the very young or old and infirm with digestive problems. Tapoica pudding saw a rise in popularity in the US in the 1960s through the 1980s and then fell off the culinary bandwagon for a while. However, we are seeing a recent resurgence in its popularity in modern times again.

The 15 year mortgage also has a history of rising and falling popularity with a slight increase in interest in the current market. By far, the most common term of a residential mortgage is 30 years. Interestingly, most people stay in their homes for fewer than 10 years (3-5), so for some, 30 years seems daunting. The prospect of not being able to fully pay off a mortgage may be difficult for some to digest (see what I did there?), so the concept of a shorter term mortgage was invented. Generally the qualifications for this type of loan are stricter (higher credit scores and tighter debt to income ratios) and that’s because payments are higher (you’re paying twice as fast) and lenders earn less on interest because of the faster payoff. Lately, we’ve been seeing these type of loans taken out by investors, on second home purchases, and on later in life home purchases.

But the 15 year payments may not be palatable by just anyone. Your finances may support paying more now, but if you’re uncertain about your job or reluctant to over commit “just in case,” a 15 year mortgage may not be the right avenue for you. Consider making additional payments on your 30 year mortgage instead (just make sure they are applied to principal only). Doing one additional full payment per year could decrease your actual mortgage payoff time from 30 years to as little as 20 or more!

Much like there is a time and a place for tapioca pudding, 15 year mortgages might not be the perfect fit for everyone’s financial situation, but in both cases, variety is the spice of life and simply knowing more about the many unique and unconventional options available to you may just help satisfy you completely. Need someone to help you find the right recipe for a successful real estate transaction? Let John Alaniva show you the proof in his pudding.

image courtesy of Presagio