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prepare-credit-for-a-mortgage

Preparing Your Credit for a New Mortgage

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Preparing Your Credit for a New Mortgage

So you are ready to take the plunge and apply for a new mortgage loan this year? Great! Congratulations on making the decision to become a homeowner. With low interest rates, tax advantages, and a host of other benefits that come along with purchasing a home, you have about a million reasons to break free from the shackles of renting.

You can set yourself up for success during your entire home buying experience by knowing what to expect ahead of time. Most importantly, you should be sure that your credit is in tip top shape so that you can qualify for the most attractive rates and terms available on your new mortgage. Check out these 5 steps to help you get started.

1. Check Your Credit

There’s nothing worse than filing out a mortgage application only to find that some unwanted “surprises” have shown up on your credit reports. Unfortunately, this is a very common problem. However it doesn’t have to be since you can access your own credit scores and reports online 24/7. Plus, contrary to a popular credit myth, checking your own credit does NOT harm your credit scores whatsoever.

CLICK HERE for a list of great resources where you can access your 3-bureau credit reports and scores. Finding out exactly what is on your credit reports prior to your loan application should definitely be the first item on your “to do” list during the home buying process.

2. Dealing with Surprises

If your credit reports were all 3 squeaky clean when you checked them in step 1, then skip down to step 3. However, if you found errors or blemishes on your credit reports then you may have some work to do before applying for a mortgage.  Remember, you have the right to dispute inaccurate and unverifiable accounts with the credit bureaus. You can dispute accounts on your own, but you also have the right to work with a professional if you are too busy or feel overwhelmed by the process. CLICK HERE to schedule a no-obligation credit analysis to develop a professional plan to help you work toward cleaner credit reports.

3. Optimize Your Scores

Even if you have no errors or derogatory items on your credit reports (i.e. collection accounts, charge-offs, tax liens, judgments, etc.), it may still be possible for you to improve your credit scores. Take a long hard look at your credit card balances. Paying your credit cards down to $0 can potentially have a very BIG impact upon your scores. (CLICK HERE to read “The Perfect Credit Card Balance.”)

Can’t afford to pay off all of your credit cards? You still have options. Paying down even a few of your cards to zero might still be beneficial to your credit scores. Plus, you can always consider a debt consolidation loan to transform that score-lowering, revolving credit card debt into much more credit score friendly debt – an installment loan.

4. Avoid Mistakes!

When preparing to apply for a mortgage, you need to be a credit boy scout. You don’t want to make any credit mistakes which could result in lower credit scores and a loan denial. Some of the most common mistakes you will want to avoid include making late payments on existing accounts, charging up your credit card balances, opening new accounts (that new car loan needs to wait!), and having your credit reports pulled excessively by lenders.

5. Monitor Your Credit Reports and Scores

There is no better time to keep a close eye on your credit scores than while you are preparing to apply for a mortgage. However, with so many credit monitoring options available, it can be difficult to choose. Keep in mind that a credit monitoring service which allows you to keep an eye on just one credit bureau and one credit score is not going to be enough. After all, when you apply for your mortgage the lender is going to take a look at all 3 of your credit scores and all 3 of your credit reports – Equifax, Trans Union, and Experian. CLICK HERE for a list of several different 3-bureau, 3 score credit monitoring services to see which one is the best fit for you.

Buying a new home is an incredible and exciting experience. However, credit problems during the mortgage application process can often turn what could be a wonderful experience into a nightmare. Follow these 5 steps above and set yourself up for mortgage success. It can be tempting to take shortcuts, but putting in the work on your credit ahead of time will pay off every time.


michelle-black-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars on various credit and financial topics. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.



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Warning Signs You May Be a Victim of Identity Theft

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Warning Signs You May Be a Victim of Identity Theft

Welcome to Part 1 of the
HOPE4USA.com Identity Theft Series

Identity theft happens when someone steals your private identifying information and fraudulently uses your name and information to open accounts in your name without your permission. Identity theft is one of the fastest growing crimes in the US. Nearly 1/2 a million consumers submitted complaints regarding identity theft to the Federal Trade Commission in 2015 (and those are just the consumers who complained - the actual number of victims is probably much higher). 


For Part 2 of the HOPE4USA.com Identity Theft Series click below:
How to Prevent Identity Theft


michelle-black-credit-expert

Michelle Black is an author and leading credit expert with nearly a decade and a half of experience, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars across the country. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 


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New Changes Coming to Your Next Mortgage Application: Trended Data

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New Changes Coming to Your Next Mortgage Application: Trended Data

Planning to apply for a mortgage in the near future? If so you should be aware of some major changes on the horizon in the mortgage world which might impact your next application. At the end of June, 2016 Fannie Mae will be adding a new element of credit data to be considered by their automated underwriting system, Desktop Underwriter (DU Version 10.0). The new element which DU will consider the next time you apply for a mortgage is known as "time series data" or "trended data."

What Is Trended Data?

According to Fannie Mae trended credit data is "expanded information on a borrower's credit history at a trade line (credit line) level [based] on several monthly factors, including: amount owed, minimum payment, and payment made." More simply phrased, trended data is a just a list of your account management information which allows lenders to see a chronological history of your credit card balances, payment amounts, and minimum payments over a series of time (2 years to be exact).  This historical payment data shows lenders whether you are a credit card balance transactor (someone who pays off her credit card balances monthly) or a credit card balance revolver (someone who does not pay off her credit card balances monthly and instead revolves a balance from month to month).

Why Does Your Mortgage Lender Care about Trended Data?

Credit reports and scores are products, sold by the credit bureaus and FICO (among others), which serve the purpose of helping future lenders predict the risk of doing business with you. If your credit reports and scores show lenders that you are a high risk borrower (aka you likely will not pay your bills on time) then future lenders may either turn you down when you apply for a loan or may charge you a higher interest rate to offset the risk they are taking.

Before trended data was featured on credit reports mortgage lenders (and any other lender for that matter) could not truly tell whether or not you made the habit of paying off your credit card balances in full each month or not. They could only see a snap shot of your current credit card balances.

Your historical payment data is important to lenders because it allows them to more accurately predict the risk of loaning you money. If your credit reports show that you pay off your credit card balances monthly then you are without question a lower risk borrower than someone who revolves credit card balances from month to month. Adding trended data to DU's risk assessment process allows mortgage lenders to more accurately predict risk.

Will Trended Data Impact Your Credit Scores?

At present trended data is only being considered by Fannie Mae's DU system when you apply for a mortgage. The data is used to help mortgage lenders using DU to predict risk, but it will not have any impact upon your actual credit scores at this time. Trended data is not considered in the calculation of your credit scores currently, but in all likelihood it is only a matter of time before trended data will have an impact upon your credit scores. Trended data is a powerful predictor of risk. You should expect to see it used more widely in the years to come.

Your New Pre-Mortgage Game Plan

In the past the best way to prepare your credit for a mortgage was to pay your bills on time, maintain credit reports which were free from derogatory information (i.e. collections, public records, etc.), and to pay off your credit card balances. However, since trended data shows lenders a 24 month window into your historical credit card payment habits, paying off your credit card balances 30-60 days before a new mortgage application simply is not going to cut it in the future.

(Need help preparing your credit for a mortgage? CLICK HERE to schedule a no-obligation credit analysis with a HOPE4USA Credit Expert today.)

As mentioned previously, mortgage giant Fannie Mae will begin considering trended data in the mortgage application process at the end of June, 2016. GSE Freddie Mac has also expressed an interest in eventually considering trended data as well. What this means for you is that with the consideration of trended data quite possibly thrown into the mix for your next mortgage application the truth is that the habit of revolving credit card balances from month to month could certainly cost you more money on your next loan and (in cases of borderline approval) could even potentially prevent you from being approved for a mortgage at all.

It has always been important to pay your credit card balances off monthly, both from a credit and a financial perspective. Yet it is now more important than ever to make and execute a plan to eliminate your credit card debt. That plan may include dipping into your savings, taking out a consolidation loan, or using the snowball method to wipe out your credit card debt as quickly as possible. Regardless of the exact method, it is important to stop feeling overwhelmed by your credit card debt and to start taking action. Remember, failing to plan really is as good as planning to fail. 






michelle-black-credit-expert

Michelle Black is an author and leading credit expert with over 13 years of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, budgeting, and identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here. 



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Foreclosure? Bankruptcy? You Might be Able to Purchase a Home Sooner Than You Think

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Foreclosure? Bankruptcy? You Might be Able to Purchase a Home Sooner Than You Think

Qualifying for a mortgage loan can be a daunting task, especially for consumers with certain types of credit problems such as bankruptcy, foreclosure, or short sales. Even if a consumer is able to rebuild his credit scores to a high enough level to satisfy a lender after one of these events (no small order), he may still be turned down for a loan until enough time has passed since the derogatory credit event before a lender will approve him for a new mortgage loan. The reason why consumers in these situations can be turned down for a mortgage even if their credit scores meet the minimum score criteria is due to the existence of mandatory waiting periods.

Not sure what your credit reports and scores look like? CLICK HERE.

Normal Waiting Periods

Fannie Mae, the government-sponsored enterprise (GSE) which is the leading source of residential mortgage credit in the United States, is slower to purchase the home loans made by lenders when certain types of credit issues appear on a borrowers' credit reports. These problematic credit issues include bankruptcies, foreclosures, and foreclosure alternatives such as short sales and deeds-in-lieu of foreclosure. When these specific credit issues occur Fannie Mae requires that a mandatory waiting period be instituted so that there is a cooling off period between the time when the major credit issue occurred and when the consumer will be eligible to qualify for a new mortgage loan in the future. Lenders have to abide by the guidelines set forth by Fannie Mae if they want the ability to sell the loans to Fannie Mae instead of being forced to hold the loans on their own personal balance sheets.

Mandatory waiting periods vary based upon both the derogatory credit event which occurred (i.e. bankruptcy, foreclosure, etc.) and the type of loan for which a consumer is applying (i.e. FHA, VA, USDA, or Conventional). If a consumer has a foreclosure on his credit reports, for example, then in many circumstances he could be required to wait up to 3 years before he is eligible to qualify for a new government-backed loan (i.e. FHA, VA, or USDA) and possibly up to 7 years prior to qualifying for a conventional mortgage.

Fannie Mae routinely adjusts mandatory waiting periods for loan programs so it is always best to check with an experienced loan officer to find out the specific wait period required for the mortgage loan program which interests you. Plus your loan officer will be able to help you determine if your situation qualifies for a reduced waiting period based upon certain "extenuating circumstances." (Don't have a loan officer? EMAIL US if you would like a referral to a loan officer we know and trust.)

FHA Back to Work Program - Extenuating Circumstances

HUD's announcement of the new FHA Back to Work Program in 2013 was very good news for consumers who experienced negative "economic events" which lead to a foreclosure, short sale, deed-in-lieu of foreclosure, or had filed for bankruptcy protection from their creditors. Thanks to the program, consumers who find themselves facing one of the situations above may be able to qualify for a new mortgage after a shortened waiting period. Qualified borrowers under the new program could be eligible to receive a new mortgage loan after as little as 1 year has passed since their derogatory credit event.

Who Qualifies?

In order to qualify for the Back to Work program consumers must be able to document the following.

1. Borrower must meet FHA loan requirements for "satisfactory credit."
2. Borrower can document the mortgage or credit problems resulted from a financial hardship.
3. Borrower has re-established a responsible credit history.
4. Borrower has completed HUD-approved housing counseling.

To qualify for the program a consumer must have credit reports and credit scores which meet the minimum requirements for approval set forth by both FHA and the lender. Next, he must be able to provide documented proof (i.e. tax returns) which demonstrates that he experienced an income reduction of 20% or more for a period of at least 6 months which lead to his derogatory credit event (i.e. bankruptcy or foreclosure). He will also need to demonstrate that he has recovered financially from the event as well. Additionally, the consumer will need to have at least a 12 month history of on-time rental payments and a 12 month credit history which is free from late payments as well.

Your Next Step

If you have taken the necessary steps to rebuild your credit after recently experiencing one of the derogatory credit events above, then you may be ready to meet with a loan officer to see if you qualify for a new FHA mortgage loan under the Back to Work Program. (Remember, if you are not already working with a loan officer you can EMAIL US if you would like a referral to a loan officer we know and trust.)

However, if you already know that you credit reports need some work before they will be clean enough to qualify for a mortgage then it is likely best for you to begin by scheduling a no obligation credit analysis with a HOPE4USA credit expert to learn what we can do together to help prepare you for your goal of homeownership.







michelle-black-hope4usa.com-credit-expert

Michelle Black is an author and a credit expert with over a decade of experience, the credit blogger at HOPE4USA.com, a recognized credit expert on talk shows and podcasts nationwide, and  a regularly featured speaker at seminars up and down the East Coast. She is an expert on improving credit scores, credit reporting, correcting credit errors, budgeting, and recovering from identity theft. You can connect with Michelle on the HOPE4USA Facebook page by clicking here.



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