2 Big Mortgage Programs Are Re-evaluating Credit Worthiness.
Due to a new rule issued on Tuesday by the mortgage-finance giants’ federal overseer, Fannie Mae and Freddie Mac, will have to consider new alternatives to FICO to determine an applicant’s creditworthiness. This ruling, executed by the Federal Housing Finance Agency, is extremely beneficial to the credit score system “VantageScore”, which is owned by the three credit reporting giants, Equifax, TransUnion and Experian.
“One of my priorities is to ensure that the American people have a safe and sound path to sustainable homeownership, which requires tools to accurately measure risk,”
FHFA Director Mark Calabria described in his written statement. Mr. Calabria later added that this new rule
“is an important step toward achieving that goal.”
“The FICO Score has been the industry standard for credit scores for decades because it is trusted by lenders to be independent, predictive and reliable, and we are confident that it will remain the superior choice by any measure established by [Fannie and Freddie],”
Joanne Gaskin, the company’s vice president of scores stated regarding the FHFA rule.
Small Lenders Make Big Impacts
Nonbank lenders have asked for the ability to use a credit score provided by VantageScore in the process of determining the creditworthiness of those applying for mortgages. These lenders, who make up more than half of the mortgage dollars issued in America, state that these alternative scores would allow for a greater amount of people to enter the mortgage market and lead to an increased number of mortgage approvals. The end result is hypothesized to provide a potential boost to home sales along with the economy in general.
A step in the right direction
Tuesday’s final rule is extremely advantageous to VantageScore because it abolishes language from a December proposal that would have prohibited any credit-score models developed by a company related to a credit-reporting firm. The FHFA eliminated that restriction amid pushback from the credit-reporting industry and congressional lawmakers. Without the beneficial addition of VantageScore to the lending scene, the monopolization of Fico when determining applicant's creditworthiness would keep us from progressing to a new age of economic well being. We as a company never really thought this day would come but it appears it has. Credit Law Center views this a positive movement for the credit industry and a huge step in the right direction.
If you would like any additional information, please feel free to call us at 800.994.3070. Click Here to set up a free consultation.
Building Buying Power
As the Spring months start peeking through, the home buying market is heating up! Have you been picturing the day when you can paint your own walls and mow your own grass? The dream of homeownership comes with great financial responsibility. Many first-time home buyers have questions about their down payment, and how they can start saving to make that first major purchase. We’ll discuss several organizations that are willing to help you with the financial burden and get you into your own home soon.
The process of applying for a loan can be overwhelming and stressful. Without an excess amount of funds, you may find yourself digging in couch cushions and trying to work extra hours to come up with the funds and savings to start the journey toward homeownership.
There are a few major factors that come into play when getting pre-qualified for a home loan.
- Credit Scores
- Down payment
Paying Down Debts? │ Not Enough Left For A Down Payment?
If you have been trying to pay down debts or have been in the credit repair process, again, excess funds may be low. After your income has been reviewed by a trusted lender, more than likely you have discussed how much money you will need for a down payment. Did the amount of money sound manageable?
There are a few loan programs that require no down payment like USDA, which you have to meet strict income guidelines for. Another is the VA loan which is only available to eligible Veterans. Let’s say you won’t qualify for either of these, what happens next?
All hope is not lost! There may be help right around the corner, you just have to know where to look. Below is a list of some other options out there to possibly help jump-start the home buying process for you.
Down Payment Assistance Programs
For down payment assistance, there may be a household income limit or a limit on the purchase price. Look in your area where you are hoping to purchase. There are some cities will also contribute and help with down payment assistance. You can search on your City website where they may talk about things like how to get grant money or down payment assistance for first time home buyers!
Talk to your lender further about what programs they may know of in the area in order to help you with funds. If you are a first time home buyer, there may be a program for you! Hoping to buy a home in a historic district? There are grants for homes in certain areas of towns where they would like to see the homes restored and rehabbed too.
Habitat For Humanity
Habitat for Humanity occasionally partners with homes with income restrictions that are in need of an overhaul and some DIY. For this program, reach out to your local organization to learn about the qualifications and application process or visit their website https://www.habitat.org/
Community Land Trusts
Community Land Trusts are also nonprofits that are willing to make the buying process more affordable by selling just the building. There would be a lease on the land that you occupied. In an effort to strengthen and serve low-income families, these Community Land Trusts serve the community and work to create homes that are permanently affordable and last for generations.
Ready For Home Ownership?
Throughout the home buying process, there will be so many new things to learn as you become a homeowner.
A few things to start doing in order to take the next step in the process are:
Shop Around For The Best Mortgage
If you are ready to take on home ownership, start looking around at lenders in your area. Consider the pros and cons of a bank, credit union, online lender or mortgage broker.
Be extremely careful as you shop around that you don’t allow each institution to start pulling credit right away!
Your credit will be pulled at this point by the lender you are using. When you have decided on the best option you will need several documents like your paystub, recent bank statements and tax return documents. There will be many different types of documents that dive deep into your finances. Remember to hold off on applying for new credit, buying a new car or making large purchases before you close!
This can really hurt your credit scores and may cause an issue for your home purchase. If your lender cannot get you pre-approved with your credit scores they may refer you to a credit repair company so that you can work on your scores. Some credit repair companies work with you as quick as they can to get your scores up so you can get back to the lender as soon as possible!
Once you complete the application, your lender will decide based on the documents you provided. At this point, the lender will let you know how much they are willing to loan. This document is typically good for 60-90 days.
Now is the time to grab your agent and start checking out all the open houses and find your dream home!
Make An Offer
Once you find the house you are looking for, your agent will write a contract up and have you sign the purchase agreement.
As you move forward with your home purchase there will be loads of paperwork and numbers thrown at you. Your lender will be your guide throughout the process and will keep you updated on documents they need in order to get your file closed on time. Talk with friends, your agent, and family about lenders they have used. The home buying process is one that can be stressful, but with the right guide, it can be exciting too!
Do You Want A McDouble Or A House?
Are you a single parent currently thinking about buying a home? Does the thought of buying a home sound unattainable and impossible? If you have been struggling to make headway as a single parent and are trying to figure out how to achieve the “American dream” you have heard of I am here to tell you it can be done. Four months ago, I spoke with someone that said I was probably not going to buy a home for another 8 months and I move into a new home in exactly one month.
As a single parent, there are many sacrifices you make on a day to day basis. More than likely your finances are already stretched as far as they can go and you may be thinking, “How would I even be able to start saving money for a down payment?”
I looked at my finances four months ago and thought the same thing. I was frustrated with where I was at, realizing my savings account was nonexistent. I asked myself what really was going on with my finances and called a local financial planner and we talked through an expense sheet. Very quickly I noticed how much money was going to non-essentials.
Re-Evaluate Your Expenses
I wrote a note on my desk that read “Do you want a Mcdouble or a new house?” It was that simple. It wasn’t that I was spending my money at Mcdonalds, but that I was constantly allowing a dollar here, four there and it starts to really add up!
You may be shocked to see how much money you actually have when you cut out the things that are not a necessity to your family.
I figured out that I was not going to be able to buy a home at the rate that I was going. I had good credit, but no savings and knew I would need money for a down payment. I found three steps that were necessary to get to buying the first home that worked for me and that may be a good starting point for you as well.
The Goal of Homeownership
Here’s what I did first:
When my paychecks deposited, I changed my mindset. When payday came, I challenged myself to think how much money I could save, rather than how much I could spend.
Paid all bills that needed to be paid on the first, immediately (rent, daycare, and utilities)
Set a budget for groceries and gas until next pay period with a little to spare for miscellaneous things or to roll over to the next check
Moved everything left into savings
Depending on your job and pay, what you move may not be a lot of money, however, starting the habit of moving things over into savings immediately starts to train the brain to pay yourself first and not spend the extra money.
I was able to start by saving about $300 for the month by moving my money over immediately. Once the second check of the month came, I found I couldn’t move as much over due to the rent being due but I stuck to the plan and remained consistent.
The next thing I did: Found a part-time job
This is where the game changed for me. My side job allowed me to bring in $300 extra a month exactly. Any time I made any extra money for anything, birthday, Christmas etc it went to savings as well and I didn’t touch it again. Maybe you don’t have the ability to work part-time or don’t want to. For me, this is how I was able to cut my time frame down to four months.
Took half of each check and paid down my lowest credit card
Took the other half of the money to put straight to savings
Thirdly, I knew that in order to get approved for a home loan, my credit scores would have to be better. I got both of my credit cards paid down to below 30% utilization and then once that was accomplished put all funds from the side job immediately into savings and watched it grow. If your credit is what is keeping you from buying a home, you may want to speak with a credit advisor about what you can do quickly, in order to maximize your credit scores.
The last piece of advice was probably the hardest for me to do but helped the most. I cooked two meals for the week every week, something different for lunch and dinner and ate the same two meals. If I did go out to eat, it was because I had a gift card or a free meal. Shopping at Aldi and taking lunch saved me the most money while trying to build onto my savings and start to become more disciplined about my spending.
I didn’t want a McDouble; I wanted a house!
Clear to Close
Preparing to buy a home was not easy but it is manageable and if you want to, it can be done. What excites you? If it is having a backyard for your child to play in, I invite you to put a photo up at your office so you can see every day what you are working toward and who you are doing it for. I personally wanted to get my daughter into a great school district and that was the goal so we could move by the time our lease was up.
Prior to November, I didn’t even have $30 in my savings account and now I am moving into my own home. In four months, I did what I thought was impossible! As soon as I changed my thought process about where the money went, everything changed. I used to get a paycheck and think about where I was going to spend the money. Now, it goes straight to savings without even a thought. Yes, you may have one income and the process may seem lengthy, but you will not get there without taking a chance! Cut out the spending, start saving, find a side hustle and start dreaming about all the things you can do.
I Want To Buy, Now!
Are you preparing to purchase a home in the next few months? It seems that when we are not looking, a home just pops up and finds us, at a time when we were not even contemplating making a move. Then, boom! The rush is on to beat the clock and make an offer before the next person does. With how quick homes are flying off the market, the best thing to do is be as prepared as possible right now, in the event you do find what you are looking for.
Many borrowers hoping to apply for a home loan are unsure of what a lender might need because it is either their first time, or the process was so long ago. Let’s go more in depth here, about what you will need to get to the point that you are ready to purchase!
Here are 4 things you’ll want to start thinking about before you meet with your lender:
- Locating your W2, pay stubs and documents to provide proof of income
- Decide if someone will be on the loan with you
- How much money you may have/can save for a down payment
- Your credit scores
FICO is grading you on a few key factors:
- Payment history
- New credit
- Types of credit used
- Length of credit history
- Amounts owed
If you are looking at your credit report and seeing several derogatory accounts, late payments or other items you will want to look at cleaning up your credit before you go in to a lender. In an effort to lessen the pain of a solid “No” next time you meet a lender, and miss out on your dream home, please consider the following points. If you feel you are a high risk borrower, there are a few things you can you do to ensure that you can lower your risk to lenders. The more prepared you are and the more education you have, the more equipped you will be to get approved and improve your buying power!
4 Challenges of a High Risk Borrower
1. Do you have a low Fico?
You can be sure that your lender will be taking a look at your credit report when you are thinking about purchasing a home. This score is a large portion of what they are using to determine your trustworthiness and the likelihood of you defaulting on a loan, based off previous loans, bank accounts, credit card payments, etc. As important as the scores are in this process, do not let this keep you from going in to see a lender.
If your FICO scores are low there are several things you can do to increase your scores on your own. Read more here, or speak to a credit advisor at Credit Law Center so they can look through your report and ensure you are mortgage ready before you find the home of your dreams.
2. What does your employment status look like?
Your employment status and employment change are two very different things. Should you be changing jobs often, this may be cause for concern. If you are working a full-time job with regular, consistent pay, creditors prefer this. If you do not work on a set schedule with set pay however, or maybe are self-employed (with less than 2 years of verifiable income), a lender may be very hesitant to lend you any money.
3. Are you lacking excess funds?
Although there are several programs in place for borrowers with little to no money down, it is a good idea to save and have some skin in the game for a down payment. Many lenders would prefer to work with someone that has shown financial responsibility and saved and set aside money. A lender may be hesitant if you do not, and potentially feel like you still may be a risk.
4. Are you avoiding other responsibilities you have?
Late payments impact your credit score the greatest. If a lender sees you have been falling behind on responsibilities you already have, this can be a large red flag during this process. Again, they are considering the likelihood of you to fall behind on the loan, and if you are late on several bills, why would they feel your mortgage would be any different?
If the above apply to you, and you are potentially a high risk borrower, do not let that stop you from pursing a home. As discouraging as things might seem, there is hope for you after some time of getting back on track.
If your credit is not where it should be and your lender has expressed concern, you may look into a few different options within credit repair. If you are in a rush and are pressed for time, Credit Law Center can help you through a quick and affordable process. Each round with Credit Law Center lasts 30-45 days. If you have items on the credit report that have to be removed (collections, tax liens, bankruptcy, etc) allow a credit advisor to walk you through a consultation.
The credit advisors at Credit Law Center will let you know what you can work on, on your end as well as what you may be doing that is keeping you from higher credit scores. With a little help and a guide to walk with you, that new home may be closer than you expected.
A Note From The Author: The opinions you read here come from our editorial team. Our content is accurate to the best of our knowledge when we initially post it.
Article by Breana Washington
Do you have questions about your credit report? If you would like to speak with one of our attorneys or credit advisors and go through a free consultation please give us a call at 1-800-994-3070 we would be happy to help.
A Referral Program That Works
As a real estate agent or loan officer, are you finding that many of your potential clients are being turned away due to low FICO scores? What are you doing to help them once they are denied? Credit scores are a vital part of the home buying process. So, what do you do when your client can’t get financed? If you do not have a trusted resource in your toolbox and a great referral program, you should continue reading.
The Referral Process
This is no fly-by-night credit repair program. We are a law firm specializing in credit repair and we only charge our clients for the successful removal of an item from the credit report. At Credit Law Center we onboard anywhere between 600-700 clients a month. We have worked diligently with lenders and real estate agents to ensure we are educating and informing each one about what their clients are going through with poor credit and what they may be able to help them (things like mistakes on the credit reports they see, or as real estate agents, clients that want to buy but cannot) and what the next steps are for their client, whether that be a little credit education or a complete overhaul of the credit report. We also educate their clients about ways they’re impacting their credit scores and what their rights are as a consumer under the FDCPA (Fair Debt Collection Practices Act) and the FCRA (Fair Credit Reporting Act).
Actually, 53% of our business comes from agents and brokers all over, as we currently work in 48 states (excluding Georgia and South Carolina). Our referral program is exceptional and we work very closely with each agent and lender.
Your Piece of the Puzzle
Give your clients the gift of a second chance. Each interaction you have with a borrower that becomes deflated due to not qualifying, you should attempt to turn the conversation around with the hope of “it isn’t a no, it’s just not yet.”
If you are looking at credit scores with a client and you see someone that cannot get qualified due to medical collections, repossessions, bankruptcy, student loans that have fallen behind or are at a 600 and below, those should be clients you send directly over to speak with a credit advisor. Clients in the poor and fair range will appreciate your effort in trying to aid them to get a home loan rather than turning them away and shutting the door on a better future for themselves and possibly their families.
- Very Good : 740-799
- Good : 670-739
- Fair : 580-669
- Poor : 300-579
As an agent or lender, you may rely on previous client referrals. How much more business could you bring in when you spend a small window of time with someone and refer them to a program to help them? You will soon become a trusted partner to them and to anyone else they may know that has gone through something similar.
The Return on Investment
The benefit to sending a client to Credit Law Center is that it costs you, as a lender or agent, nothing! We understand that building your pipeline and building relationships comes down to the people you refer business and how quickly they get back to you. The referral partners we work with can feel secure in knowing that their clients will only be charged for actual work that is being completed rather than a month to month service fee.