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| Financing and Mortgage |
Length of Credit Used: In general, a longer credit history will increase your FICO score. However, even people who have not been using credit long may get high FICO scores, depending on how the rest of the credit report looks. Credit history accounts for approximately 15 percent of your FICO score.
New Credit: Factors here include how many new accounts you have by type of account. It also may look at how many of your accounts are new. How long it has been since you opened a new account? What is the length of time since credit report inquiries were made by lenders. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a FICO score over time. Your new credit accounts account for 10 percent of your FICO score.
Types of Credit Used: Is it a “healthy” mix? Approximately 10 percent of your FICO score is based on this category. The score considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Your FICO score also takes into account the kinds of credit accounts you have. Do you have experience with both revolving and installment type accounts, or has your credit experience been limited to only one type? How many of each? Your FICO score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary depending on your overall credit picture.
According to Fair Isaac Corporation, a FICO score takes into consideration all these categories of information. Also, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.
Other tools and resources: Visit www.myfico.com and select credit calculators to compare loans, determine mortgage payments, whether a fixed or an adjustable loan makes sense, determine closing costs and whether renting or buying is the better option.
SAVING FOR THE DOWN PAYMENT
It is recommended to pay about 20 percent or more of the cost of the home for the down payment. This is known as 80 percent Loan To Value ratio (LTV). If you put down less than this you will be required to pay Private Mortgage Insurance (PMI), which protects the lender in the event you default on the loan. PMI is not tax deductible and can cost anywhere from $25 to $65 per month for a $100,000 loan. It’s determined by the size of the down payment, the type of mortgage and amount of insurance. Monthly PMI is paid with the mortgage. Remember that, under the federal law, the lender is required to cancel the PMI once the LTV ratio reaches 78 percent or, in other words, when your mortgage amortized to 78% of the original value of the house. The borrower must be current on all mortgage payments and the lender must tell the borrower at closing when the mortgage will hit that 78 percent mark.
GETTING YOUR LOAN APPROVED
Being preapproved by a lender can put you in a much stronger negotiating position because it shows the seller that you are a qualified, ready-to-buy buyer, financially capable of buying the property and more likely to close on the property. Getting preapproved also allows you to understand your financial condition and how much you can afford before you begin your home search.
Preapproval is different from prequalification, which is merely an estimate of what you may be able to afford. Preapproval occurs when the lender has reviewed your credit and believes that you can finance a home up to a specific amount based on collected preliminary information. However, neither preapproval nor prequalification represents or implies a commitment on the part of a lender to actually fund a loan. Here are some of the current documents you’ll need to get started:
Income:
ANTICIPATING YOUR COSTS
Review the information provided below to anticipate your costs involved in buying a home. This is only a partial list. For more detailed costs, ask your Realtor® to help you create a worksheet that can be updated as necessary.
— Estimating Buyer’s Fees
Whether it’s called loan origination or loan service fee, it can be up to 3 percent of the loan amount and can include the following:
CREDIT UNIONS
Many people shopping for home loans forget to inquire at credit unions. There are two major differences between a traditional bank and a credit union. One difference is that credit unions are member-owned meaning that if you have an account at a credit union, you’re part owner in the enterprise. Being a member can translate into better service since you are more than a customer. The other difference is that credit unions are not-for-profit which explains why mortgages and interest rates tend to be notably better. Becoming a member is easier than typically believed; you can use the credit union search tool at www.JoinACU.org to find a local branch.
New Credit: Factors here include how many new accounts you have by type of account. It also may look at how many of your accounts are new. How long it has been since you opened a new account? What is the length of time since credit report inquiries were made by lenders. Re-establishing credit and making payments on time after a period of late payment behavior will help to raise a FICO score over time. Your new credit accounts account for 10 percent of your FICO score.
Types of Credit Used: Is it a “healthy” mix? Approximately 10 percent of your FICO score is based on this category. The score considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. Your FICO score also takes into account the kinds of credit accounts you have. Do you have experience with both revolving and installment type accounts, or has your credit experience been limited to only one type? How many of each? Your FICO score also looks at the total number of accounts you have. For different credit profiles, how many is too many will vary depending on your overall credit picture.
According to Fair Isaac Corporation, a FICO score takes into consideration all these categories of information. Also, lenders look at many things when making a credit decision including your income, how long you have worked at your present job and the kind of credit you are requesting.
Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.
Other tools and resources: Visit www.myfico.com and select credit calculators to compare loans, determine mortgage payments, whether a fixed or an adjustable loan makes sense, determine closing costs and whether renting or buying is the better option.
SAVING FOR THE DOWN PAYMENT
It is recommended to pay about 20 percent or more of the cost of the home for the down payment. This is known as 80 percent Loan To Value ratio (LTV). If you put down less than this you will be required to pay Private Mortgage Insurance (PMI), which protects the lender in the event you default on the loan. PMI is not tax deductible and can cost anywhere from $25 to $65 per month for a $100,000 loan. It’s determined by the size of the down payment, the type of mortgage and amount of insurance. Monthly PMI is paid with the mortgage. Remember that, under the federal law, the lender is required to cancel the PMI once the LTV ratio reaches 78 percent or, in other words, when your mortgage amortized to 78% of the original value of the house. The borrower must be current on all mortgage payments and the lender must tell the borrower at closing when the mortgage will hit that 78 percent mark.
GETTING YOUR LOAN APPROVED
Being preapproved by a lender can put you in a much stronger negotiating position because it shows the seller that you are a qualified, ready-to-buy buyer, financially capable of buying the property and more likely to close on the property. Getting preapproved also allows you to understand your financial condition and how much you can afford before you begin your home search.
Preapproval is different from prequalification, which is merely an estimate of what you may be able to afford. Preapproval occurs when the lender has reviewed your credit and believes that you can finance a home up to a specific amount based on collected preliminary information. However, neither preapproval nor prequalification represents or implies a commitment on the part of a lender to actually fund a loan. Here are some of the current documents you’ll need to get started:
Income:
- Current pay stubs.
- W-2s or 1099s
- Bank statements
- • Investments/brokerage firm statements
- • Net worth of businesses owned (if applicable)
- Loan statements
- Alimony/child support payments (if applicable)
ANTICIPATING YOUR COSTS
Review the information provided below to anticipate your costs involved in buying a home. This is only a partial list. For more detailed costs, ask your Realtor® to help you create a worksheet that can be updated as necessary.
— Estimating Buyer’s Fees
Whether it’s called loan origination or loan service fee, it can be up to 3 percent of the loan amount and can include the following:
- Loan application fee.
- Lender’s credit report.
- Lender’s processing fees.
- Lender’s documentation preparation fees.
- Lender’s appraisal fees.
- Prepaid interest on loan – prepaid per day until the end of the month in which the closing occurs.
- Lender’s insurance escrow – can be up to 20 percent of the cost of a one year homeowner’s insurance policy.
- Lender’s tax escrow – depending on the time of year you close this can be up to 50 percent of the yearly property taxes.
- Lender’s tax escrow service fee- fees to set up the tax escrow.
- Premium mortgage insurance (PMI).
- Title insurance cost for lenders policy – depending on what part of the country you live, a portion or the full amount may be paid by the seller.
- Special endorsements to the title – depending on the property you pick the lender may require that the buyer pay special endorsements such as an environmental lien endorsements or location endorsements.
- House inspection fees – any that remain unpaid.
- Title/escrow company closing fee.
- Recording fees, for the deed or the mortgage.
- Local city, town or village property transfer tax, county transfer tax and state transfer tax, which may vary from city-to-city and state-to-state.
- Flood cert fee – Fee to determine if the home you pick is in a flood plain.
- Buyer attorney’s fee.
- Association transfer fee.
- Condo move-in fees.
- Co-op apartment fees – fees that may be required to transfer the shares of stock in the property to the buyer.
- Any credit checks by the condo or co-op board.
CREDIT UNIONS
Many people shopping for home loans forget to inquire at credit unions. There are two major differences between a traditional bank and a credit union. One difference is that credit unions are member-owned meaning that if you have an account at a credit union, you’re part owner in the enterprise. Being a member can translate into better service since you are more than a customer. The other difference is that credit unions are not-for-profit which explains why mortgages and interest rates tend to be notably better. Becoming a member is easier than typically believed; you can use the credit union search tool at www.JoinACU.org to find a local branch.
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