MANY Things Affect Interest Rates!

Credit Scores and Negative Propertery Issues Indicate Risk Categories to Investors.

If you apply for a home loan with a FICO credit score of 720 or over, you will most often be approved for the current lowest interest rate if you are submitting full documentation (proof of employment, assets, etc.). An applicant with 680 or better, depending on the specific lender's guidelines must have pretty solid income verification and be a wage earner, not a self employed person. The litmus test for self employed persons for best terms is currently 740+ FICO.

For example, let's say you can get 6% as an average 30 year fixed rate for a person with 720+ middle FICO Score. If your score is 680-719, you may be offered an interest rate of 7%. If your score is below 680 expect 'hits' to your price and possibly 8% or higher for the rate. Below 600 and you will be charged even higher rates and may only qualify for much higher rates or be limited to programs. Most of our FHA lenders want 620 or higher these days.

There are 'No FICO Score' programs but that is for people who have insufficient credit history to have a rating. Very few lenders offer the No Fico programs (we know of a few) and even fewer accept Alternative Credit Reports due to the lack of verificaiton involved. These days everything--but everything is about verification.

Too bad it’s not that simple! In addition, there are higher loan costs in points and fees for having negative credit issues

What constitutes 'credit issues'? 1. If you have a history of late payments with creditors within the last twelve months. 2. If you have fewer than three active lines of credit. 3. If you have filed bankruptcy within the last seven years. 4. If you have suffered an foreclosure in the last 10 years. 5. If you have unpaid collections or charge-offs within the last 2-4 years (depending on the lender). 6. If you have liens or judgements against your title.

Title issues: Liens against a title must be paid off before or at closing to provide a 'clear title' for a lender. In the case of paying off an existing mortgage company, this is straightforward process handled by our esrow agent. In the case of unpaid collections expect additional interest fees or to pay them at closing. Also, if someone else is listed on your title (often in the case of divorce) you must secure a quit claim deed from the other party and submit your divorce or settlement papers.

Beware of having your children on title. If they are over 18 they can cause serious credit liens without your knowledge by credit card abuse or other bad behavior. According to some states, children under 18 cannot be legally responsible to hold title to mortgages unless their net worth exceeds 2 millon dollars.

Property issues which may cause a lender to deny your application: 1. If your property is zoned rural or agricultural or is over ten acres. 2. If your property is in a flood zone or hazardous area. 3. If your property appraiser cannnot provide three comparable property sales within 2 miles and six months. 4. If the appraiser's report reprots siginificant damange or safety issues. 5. If a manufactured home has been moved or had additions made to it... it is literally unfundable.

Note: there are many other issues which individual lenders use to establish the rate they offer a borrower, based on their own portfolio of property and risk ratios. In fact, some lenders specialize in higher risk portfolios because they can charge more for the money.

The more negative issues you have on your Credit Report, the greater risk you are considered by a lender, and this is reflected in your score (read more about Credit Scores below this blog) As a result, up go the lender's requests for documents (conditions) and potential fees for underwriting and appraisal reviews. Not to mention your bank or broker will charge more for their time.

Now don't let all this talk about rates get you down. It's really not the most important aspect of a mortgage. Two main factors affect your acceptance for a specific loan amoun: 1. The LTV or Loan to Value, which means how much you are borrowing against a property's worth. If the LTV% is under 65% the rate offered may improve. 2. Your Monthly Payment or Debt to Income (DTI) is usually the kicker...i.e., how much can you afford to pay toward your housing cost every month. Most lenders still offer short term ARM products to help you achieve home ownership or refinance for a year or three. These loans will help you improve your FICO score and you won't miss out on that wonderful new home at today's low prices!

For more indepth information on Credit issues, visit NetCredit

Wishing you every credit sanity! Loannetter
©2009 susan templeton

Popular posts from this blog

How Risk Affects Mortgage Interest Rates

Credit Scores and Certain Propertery Issues = Risk Categories to Investors. If you apply for a home loan with a FICO credit score of 720 or over, you will most often be approved for a great interest rate with full documentation (proof of employment, assets, etc.) and the property values well. An applicant with a mid FICO score of 680 or better, depending on the specific lender's guidelines must have pretty solid income verification and be a wage earner. The litmus test for self employed persons for best terms is currently 740+ FICO and very solid tax returns and quarterly reports. Example: L et's say you can get 6% on a 30 year fixed rate for a person with 720+ middle FICO Score. If your score is 680-719, you may be offered an interest rate of 7%. If your score is below 680 expect 'hits' to your price and possibly 8% or higher for the rate. Below 600 and you will be charged even higher rates and may only qualify for much higher rates or be limited to programs. Most...
Read more
Loannetter's got a brand new niche! We are thrilled to report that we have flown the coop to New Zealand and are up to our old tricks of consumer advocacy and community building in Auckland as Niche Mortgages. It's tough living the life of expatriate beach parties and volcano wandering. Seriously, not that tough. We still hang on occasion with our fellow Americans in Paradise and in fact have a facebook page and host events to cater to our friends near and far. Do drop in! 
Read more

Staying Alive--and SANE!

I fondly recall the image of John Travolta combing his hair while walking down the street to the Bee Gees 'Staying Alive' in Saturday Night Fever . That movie was really about a street smart guy using everything at his disposal including very fancy footwork to win against the odds. To identify with such a caricature is what it feels like to be a mortgage broker today. We are the creative, the resourceful, the get it done folks you know will find a way if anybody can. However you may be affected by the horrible news going down in the financial world--I would like to stand in support of some very committed mortgage professionals I call my colleagues. While it is sad for us to watch our lenders (some very decent folks) one by one close their collective doors...it is obvious from where we sit that the biggest of our esteemed banks have been doing (to quote today's newscaster) "really stupid things!" It is very hard to imagine what was going through the minds of...
Read more