Some of you may already know this but for those who don’t some recent changes are being made to the way FICO scores are being tallied. On August 7th, Fair Isaac Corp announced that it will discontinue using in its credit score calculation any unpaid bill reports where the bill was actually paid in its scoring. In addition it will give less weight for any unpaid medical bills. So if you have a client with a credit score on the edge of loan qualification and where trying to get qualified but couldn’t this might be the break they need. The new scoring model will roll out later this fall so check with your loan Brokers for more details on this issue.
Did you know?
You can purchase a home using a reverse mortgage.
The Home Equity Conversion Program (HECM) for purchase is an innovation that helps seniors use the equity from the sale of their previous house to fund the purchase of their next home.
The HECM for Purchase is a Federal Housing Administration (FHA) insured home loan that allows seniors to use the equity from the sale of a previous residence to buy their next primary home in one transaction. Regardless of how long they live in the home or what happens to their home’s value, they only make one, initial investment (down payment) towards the purchase.
On new Applications submitted on or after August 16, 2014, FNMA’s new wait period for a Short Sale or Pre-Foreclosure sale is being updated to a four-year waiting period; though a two-year waiting period will be permitted if the event was due to extenuating circumstance (must be a major extenuating circumstance like death or a wage earner) and the loan complies with all other requirements.
All About Your Escrow
- What do I need to do before my appointment to sign loan paper?
Cashier’s Check: Obtain a cashier’s check made payable to the escrow company in the amount indicated to you by the escrow.
Lender’s Requirements: Make sure you are aware of your lender’s requirements and that you have satisfied those requirements before you come to the escrow company to sign your loan documents.
Hazard Insurance: If you are purchasing a single-family home/detached home, be sure to order your hazard insurance. Then call your escrow agent with the insurance agent’s name and phone number. You must have secured hazard insurance before the lender will send its money to the escrow company.
Identification: Please bring a driver’s license or passport (photo ID) for each person who will be on the title with you to the escrow company. This is needed so that your identity can be verified by a notary public. It is a necessary step for your protection.
- What is the next step?
After you have signed all the instructions and documents, the escrow officer will return theme to the lender for review. This usually occurs within a few days and upon completion, the lender is ready to fund the loan and advise escrow.
- What is an “Escrow Closing”?
The “escrow closing” is the culmination of the transaction. Is signifies legal transfer of title from the seller to the buyer. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow’s receipt of loan funds. This signifies the official close of escrow.
- When will I receive the deed?
The original deed to your home will be mailed directly to you at your new home by the County Recorder’s office. This usually takes several weeks, sometimes longer.
The right amount to borrow
To find out whether you can afford to repay a loan, take the difference between your income and your expenses. This is your discretionary income. From this amount, you’ll need to first deduct your minimum monthly savings. It’s a good idea to also deduct additional savings to help you meet some of your financial goals. These might include buying a house or a new car or building an emergency fund.
What’s left over defines how much new credit you can afford to take on. If you’re only just meeting your monthly bills, an unexpected expense could mean a serious financial setback.
If you are already paying off debt, which should be included in your expense summary, you may not be in a position to use additional credit until your existing obligations are repaid.
Understanding the basics of the Ability-to-Repay Standards
Discover what new information is required of potential borrowers with regard to new mortgage loan applications now that Ability-to-Repay (ATR) Standards are in effect.
In 2013, federal regulators issued Ability-to-Repay (ATR) Standards intended to ensure that borrowers can comfortably afford a home loan. The ATR Standards go into effect for loan applications received on or after January 10, 2014.
Clients should be aware that the new rules require lenders to collect and verify eight types of financial information from a potential borrower:
- Current income and assets
- Current employment status
- Credit history
- Monthly payment for the mortgage
- Monthly payments on other mortgage loans (second-lien loans made at the same time as the first-lien mortgage)
- Monthly payments for other housing-related expenses, such as property taxes, homeowner’s insurance and homeowner’s association fees
- Amounts paid on all other debts
- Monthly debt payments compared to monthly income, aka debt-to-income ratio
Taking all of this into consideration, the lender must determine that a borrower has sufficient income/assets and a debt-to-income ratio that would enable the borrower to comfortably afford their monthly mortgage payment.
The Right Credit Level for You
You should borrow only enough money to make the purchase you have planned, rather than borrow as much as you can get:
- Decide on your short and long-term financial goals
- Calculate your average monthly income and expenses (including all the bills and debt you’re currently paying)
- Establish a saving and spending plan
How much debt is okay?
Some argue that any debt is too much. Others say that you should have only good debt (for investing) and no bad debt (for spending). In reality though, debt is simply a financial tool that you should use wisely to avoid getting in over your head.
There are several measures you can use to determine whether you’re carrying too much debt. One we rely on is known as the total debt service(TDS) ratio. As a general guideline, no more than 40% of your monthly gross (before deduction/taxes) income should go toward mortgage loan payments and other monthly debt obligations.
Realistically, the amount of credit you can afford depends on your personal situation. If your current employment is not secure, you will probably want to take on less credit than the recommended guidelines. On the other hand, if you have no other obligations, such as a mortgage, and your source of income is reliable, you may want to take on more credit, depending on your goals.
A good credit report gives you financial Muscle!
If you thought you got the last report card of your life when you graduated from school, you might be surprised to find that you’re being graded right now – on how you pay your bills. Just the way a good report card got you into the school or job you wanted, a good credit report can help you get the things you want now – a credit card, a mortgage or other loan, better terms on the money you borrow, an apartment, even a job. Since good credit is such a valuable financial tool, you’ll want to protect yours so that it’s there for you when you need it someday.
A conventional mortgage does have its advantages. The primary one is that with a conventional mortgage you probably won’t have to pay for the mortgage insurance upfront or for the monthly mortgage insurance you would be required to pay with an FHA loan. As of April, 2010 the FHA requires upfront mortgage insurance of 2.25% on the loan amount, regardless of how much you put down. As an example of what this would cost you, if you were applying for a $l00,000 mortgage, you would have to pay an extra $2,250 for the mortgage insurance upfront, plus your down payment and your other closing cost.