Credit Score Basics for Home Buyers

February 9, 2017 by

A recent survey reported that 2.7 times more first time home buyers than repeat buyers believe they must improve their credit scores before buying a house.  First let’s dispel credit score myths.  A home buyer can possibly win mortgage approval with a credit score as low as 620.  If your score is 620 or higher, you can possibly win loan approval.

If your score is less than 620, you need to work to improve it before you can qualify.  If your score is 620 or higher, you may want to take steps to increase your score as better scores tend to lower mortgage costs.  Note that I am not a credit score repair specialist, but here are some basic, fundamental tips to improve your credit score:

Pay down your credit card balances:  You get the best score on each credit card account when your balance is less than 1/3 of that account’s credit limit.  Your score drops when your balance is more than 1/3 of the limit.  And your score drops even further if your score is more than ½ of the credit limit. 

Pay your bills on time:  Late payments lower your score.  The later the payment, the more your score is penalized.

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Time heals all wounds:  The more time that has elapsed since your last late payment, the less those late payments will affect your current score.  Some credit issues have mandatory waiting periods.  For example, if your credit report shows a bankruptcy, 2 years must elapse before you can obtain a FHA mortgage, and 3 years must elapse before you can qualify for a conventional mortgage. 

Resolve account disputes now:  Mortgage underwriters hate account disputes.  If you have disputes on credit accounts, go ahead and resolve them prior to applying for a mortgage.

Be aware of collections accounts:  Note that I didn’t say to pay them off.  Sometimes, paying off a collection account will actually lower your credit score.  If you want to buy a home in the next 12 months or so, it may be best to just know about the collections accounts – you may have to deal with them as part of your mortgage process.  In some cases, we require the borrower to bring enough cash to close and to pay off collections account balances as part of the mortgage closing process.

If you want to buy a house in Georgia, get a good idea of your credit score and your monthly debt payments.  Then call me to discuss your loan options.  I’ll invest time coaching you on the best ways to help you win loan approval. 

More mortgage questions?  Check out our home buyer educational videos.

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Educating First Time Home Buyers

February 2, 2017 by

A recently published survey of 2016 home buyers shows that first time buyers (“FTBs) comprised a larger percentage (35%) of all home buyers than in 2015 (32%).  FTBs face greater challenges than buyers who have previously purchased homes.  In addition to the uncertainty and stress in making such a major financial decision for the first time, FTBs face additional financial challenges, some real and some more perceived.  For example:

  • 2.7 times more FTBs than repeat buyers believe they must improve their credit scores before buying a home.   
  • 2.9 times more FTBs than repeat buyers expect a home purchase delay due to their current lease terms.   
  • 3 times more FTBs than repeat buyers say they lack enough money for a down payment.

In short, first time buyers need significant education, advice and support.  In future blog posts, we will address each of the above challenges in more detail.  For now, let’s take a quick look at some ways Dunwoody Mortgage Services (“DMS”) helps to educate home buyers.

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The DMS staff has created a series of home buyer education videos published on our website:  http://dunwoodymortgage.net/custompage-view.aspx?id=9.  These videos are concise and to the point, each covering a key mortgage process topic, such as cash to close, monthly payments, mortgage insurance, and more. 

We encourage our clients to plan early – last year I closed a loan for I client with whom I had been talking for 2 years.  My boss’ record is 7 years.  In short, we will take the time to listen, to coach, and to help our clients plan for a future home purchase.  And sometimes, it may take a few years to save enough money, to improve credit scores, or to meet tax return guidelines for self-employment.  Helping our clients plan for mortgage success is something the DMS staff enjoys doing.  

Also, we coach our clients to plan a home purchase that best fits their financial situation.  Oftentimes, a home buyer can qualify for a mortgage payment that is so high, they would have to change their lifestyle to live with the payment.  Such high payments can lead to significant financial stress – we call that being “house poor.”  We consult with our clients about how a mortgage payment will fit into their budget and lifestyle.  We encourage discipline and budgeting, with the goal of helping the client buy a home that they love, and that they can comfortably afford.

Know a first time home buyer who needs financial coaching and counsel?  Tell them about us here at Dunwoody Mortgage — we will invest a lot of time in them, so their first home investment will be successful, and with minimal stress. 

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Volatility Reigns

January 31, 2017 by

blog-author-clayjeffreys3

Market volatility is going to be the theme for 2017… or at least the theme for the foreseeable future. Basically, I am picking up where I left off a couple of weeks ago. As discussed last time, Wall Street seemed to embrace the idea of a Trump administration as stock values soared after the election… well, so did interest rates. Rates rose over a point in the roughly 2 months after the election. Rates did begin to improve some until…

Stocks hit 20,000 for the first time ever. Rates went back to their higher levels since the election. Then something unexpected happened… Trump signed the executive order for the immigration ban. The Dow is off about 200 points from its all time high, and interest rates improved by 0.250% in the last few days. It is going to be a bumpy ride. If this is too much, then take a deep breath, keep calm, and…

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In addition to keeping calm and loving our pets, is there anything else that can help when buying a home in this volatile market? Yes, there is!

As briefly mentioned in my last post, there is a one time FREE rate float down on locked interest rates with Dunwoody Mortgage Services. After we lock the rate, should rates improve by 0.250% or more, then we can float the rate down to the current market for the home purchase. The rate will NOT increase while locked; it can only improve while it is locked.

Looking to buy a home in Georgia? Like the idea of locking to protect your rate, but having the option to lower should rates improve? If so, contact me today? I can get you prequalified to make an offer, and explain all the details of the float down process.

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Economic Uncertainty and Mortgage Rates

January 17, 2017 by

blog-author-clayjeffreys3

How does economic uncertainty impact mortgage rates? I’m glad you asked!

In general, when the economic outlook is good, investment dollars go into stocks. As money goes into stocks, there is less money available to go into bonds. This flow of money causes stock values to rise, and bond prices to fall. As mortgage backed security bonds (or MBS Bonds) values fall, interest rates rise.

Some recent recent examples:

  • Brexit Vote: when the UK voted to leave the EU, that sent shockwaves through the world financial markets. Stock markets around the world pulled back, and bond prices went up. Mortgage rates improved until…
  • US Presidential Vote: Mortgage rates soared as stocks soared after Trump was elected president of the United States. Seems stocks felt Trump’s election would be a boon for business in the US. Stocks flirted with all-time highs day after day once Trump won the election. With this much money going into stocks, bond prices dropped, and mortgage rates increased by over a full point (from low 3’s to mid 4’s) in the weeks following the election.
  • US Presidential Inauguration: as the nation gets ready for the 45th President of the United States, there are signs the honeymoon period is over. A recent article said Trump would have the lowest approval rating of any President at inauguration. The gains in stocks have slowed, and there is growing concern about the “trade war” rhetoric. Maybe a trade war works out in the long run, but the short run in hurts business, hurts investments, and can cause a recession. With these thoughts in mind, we’ve seen stocks pull back over the past couple of weeks, and mortgage rate have improved.

What does the future hold? For those wanting to see lower rates, economic uncertainty is a main contributor to rates improving. It is no coincidence that all-time lows in mortgage rates occurred during the Great Recession. It is also no coincidence that mortgage rates haven’t dramatically improved since the economic recovery from the Great Recession has been slow and painful for many. And there in-lies a great dilemma… the quickest way for mortgage rates to improve (outside of Governmental influence such as Quantitative Easing) is from economic hardship. While low rates are great, in the long run, a sluggish economy isn’t great either.

Looking to buy or refinance a home? If refinancing, sitting and waiting isn’t a bad idea. I am currently watching rate for several clients in hopes they continue to drop. Once we hit our target rate, we get started. If buying, this is trickier as you can’t sit and wait for a long time on rates when there is a closing date involved! This is where our FREE one time rate float down comes in handy. Ask me about it! If the home is in the state of Georgia, contact me. We can get started today on your loan.

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How Could Fed Rate Increase Affect Mortgage Rates?

December 20, 2016 by

For the first time in a year, the United States Federal Reserve raised the federal funds rate by 0.25%.  How will that impact mortgage interest rates?

Here’s a history lesson:  The last time the FED raised the federal funds rate was in December 2015.  By the end of January 2016, mortgage interest rates actually improved by about a half point.  Mortgage rates then stayed flat (for the most part) until June and July, when they continued to improve.  Mortgage rates stayed at this very low level until election day.  From election day through December 15, 2016,  mortgage interest rates increased about 0.75%.

When trying to analyze mortgage interest rates, it makes sense to look at a mortgage loan as an investment.  Here’s why…Fannie Mae and Freddie Mac purchase most of the conforming mortgages originated in the USA.  They “pool” these mortgages into mortgage-backed securities (“MBS”) which are bought and sold on Wall Street just like other investments.  MBS provide investors with regular, predictable income (from the interest payments on the mortgages), so they are considered less “risky” than stocks and mutual funds.

But ultimately, MBS must compete with all other investments for investors’ dollars.  In the recent, post-election period, stock values have increased making equity investments more attractive.  To compete, lenders had to raise mortgage interest rates to provide a greater return and compete with the high-flying equities.

 

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In addition, China has been selling large amounts of its US government debt holdings.  As China sells, that creates pressure to raise interest rates on US government debt.  Again, government debt competes with MBS for investor dollars.  As interest rates on government debt increase, mortgage rates may have to rise to remain attractive to investors.

So what is a home buyer to do?  If you plan to buy soon, you can relax knowing that, once you get a home under contract, your lender can lock your interest rate through your closing date.  This means that if market interest rates rise between the time you lock your rate until closing, you still pay the lower rate specified in your lock.  You are protected against rate increases.

In addition, Dunwoody Mortgage offers a free interest rate float down on some mortgage products.  This means that, if market mortgage rates drop after you lock your rate, we might be able to lower your rate before closing.  With the free float down, after you lock your rate, you are protected should interest rates increase, and you may still be allowed to benefit if market rates decrease.

Ultimately, we at Dunwoody Mortgage are working in the best interest of our borrowers.  If you are looking to buy a house anywhere in Georgia, and mortgage interest rate changes make you nervous, contact me.  We can set you up with a loan program that can help protect you against the ups and downs of mortgage interest rate changes.

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Happy Holidays

December 17, 2016 by
Welcome to the Winter Wonderland. Happy Holidays!

Welcome to the Winter Wonderland. Happy Holidays!

Mortgage Loan Limits Rise

December 6, 2016 by

blog-author-clayjeffreys3

After some discussion on raising limits last year (that didn’t happen), mortgage loan limits are increasing for the first time in over a decade. Starting January 1, 2017, the loan limits for single family residences are increasing to:

  • Conventional Loan: $424,100 (up from $417,000, which is roughly a 2% increase)
  • FHA Loan: $358,800 (up from $342,700, which is roughly a 5% increase)
  • VA Loan: will match conventional loan limits just as these loans have been doing for years

Borrowers can now purchase a $438,000 with as little as 3% down. That is up about $9,000 from the old limits. FHA loans can now be as high as $372,000 (up from about $355,000). The increase on FHA loans is great for first time home buyers purchasing in the metro Atlanta area.

Remember, these limits start on January 1st. So if you need a little more room to keep a conventional loan, or make a higher FHA purchase, the loan process will need to start in early January.

Looking to buy a home in the Spring? Needing to get prequalified and start the process? If you are buying in Georgia, contact me today to get the process going!

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Interest Rates Jump

November 15, 2016 by

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One thing that I did not expect from this election was the change in interest rates.  Mortgage interest rates on November 14 were a half a percentage point higher than they were on November 7.  Rates are still close to their historic lows, and still lower than rates back in the second half of 2015, but they definitely have taken a quick upward turn in the last week.  And there’s really no way to predict how far rates may rise.  For a better understanding of what drives mortgage interest rates, take a look at these prior posts:  https://themortgageblog.wordpress.com/2016/07/12/interest-rates-lower-from-brexit/ and https://themortgageblog.wordpress.com/2016/10/18/feds-may-not-raise-rates-at-all-this-year/

While I don’t have a crystal ball to forecast interest rates, I will simply apply a bit of common sense.  Interest rates have been very, very low for multiple years now.  There really isn’t much opportunity for rates to go lower.  So logically, if rates are going to move, they will likely go up.  If you are ready to buy a house, how do you protect yourself from a rate increase?  Answer:  You lock your rate.

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When a home buyer goes under contract, I can lock rates for periods from 30 days up to 90 days.  The longer the rate lock period, the higher the price.  Locking your interest rate is the sure way to protect yourself against rate increases.  I locked a refinance on November 8, just before the close of business.  I hate to think that this client’s rate would now be 0.50% higher if we had delayed.  Because she locked for 45 days, her rate will not increase if we close the loan before the end of business on December 23.  As long as you can close before the lock expires, your rate will not change.  If something delays closing past the lock expiration, that might cost you.  (Moral of the story, quickly respond to any request from your loan officer.  Delays can cost you.)

Borrowers also want to know what happens if market rates decrease after they lock their interest rate.  Dunwoody Mortgage can also offer a free rate float down option on some loans.  If your qualifying rate drops by more than 0.25% and we can relock it (1) less than 30 days and (2) more than 7 days before closing, we may be able to do that at no charge.

So if you want to buy a home and you are worried about interest rate fluctuations, know that Dunwoody Mortgage can protect you regardless of which way the market moves.  Moving forward with a Georgia home purchase soon?  Call me here at Dunwoody Mortgage now, before rates go up any more.  We can answer your questions and offer the counsel to best protect you against interest rate changes.

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Credit Reports and Qualifying for a Mortgage #3

October 19, 2016 by

In prior posts we reviewed the credit score and public record components of a credit report.  But even with a qualifying score and a clean public record history, that doesn’t mean you are in the clear.  There are other credit report factors that can create underwriting hurdles which we must overcome.  Here are some other details we consider…

The credit report shows a history of open and closed credit accounts.  Data shown for each account includes:

  • Current account balance.
  • Account credit limit.
  • Account type – credit card, mortgage, student loan, auto loan, etc.
  • Account status – open, closed, collections, etc.
  • Minimum payment – these are important because they are included in the client’s (let’s call her Mindy) debt to income ratio.  If the total of all monthly payments is too high, Mindy might not qualify for the loan desired.
  • Late payment history – late payments are categorized as follows — 30 day lates are not good; 60 day lates are bad, and 90 day lates are really bad.  The report shows the dates of the most recent late payments.

If Mindy’s late payments were made more than 2 or 3 years ago and she has been consistently making on-time payments since then, it likely will not cause loan denial.  However, if Mindy’s late payments occurred after a bankruptcy, then underwriting may deny the loan.  I’ve had this happen where the underwriter said no to a client with a bankruptcy in 2010 followed by two 30-day late payments in 2012.

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  • Account disputes – if Mindy has officially disputed an account, it will show on her report.  Underwriters do not like account disputes.  This is especially true for FHA mortgages when a disputed account balance exceeds $1,000.  In some cases, the dispute can lead to loan denial.  I’ve had clients who had to go through a multi-week process to get a dispute removed from their credit before we could win loan approval.  I search for the word “dispute” on all credit reports.
  • Collections accounts – when an account has a collections status, this can cause loan denial.  This is especially true for FHA mortgages.  If the total outstanding amount of all collections accounts exceeds $1,000, underwriters will not approve an FHA loan until the balances are paid in full.  I had a client with 3 collections accounts earlier this year.  The client had plenty of cash, so we simply included the payoff of all collections accounts at the closing of her home purchase.

Once again, there is much more to a credit report than the score.  If you know someone who wants to buy a home in Georgia, don’t let them get mislead by a lender in a hurry.  Refer them to Dunwoody Mortgage, we will invest enough time up front to give everyone great confidence that the mortgage will actually close.

 

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Feds may not raise rates at all this year

October 18, 2016 by


blog-author-clayjeffreys3

Well over a year ago, the Federal Reserve indicated they would begin raising the Federal Funding Rate. This started in December 2015 when the rate increased by 0.250% for the first time in almost a decade. While we didn’t expect a 0.250% increase each time the Feds met this year, surely there would be another increase at some point. Right?

The year is almost over, and the Feds have stood their ground. The comments from the most recent Fed meeting made it sound as if it is doubtful there would be an increase this year, but could be in 2017 as the economy continues to reach employment goals.

Does that mean potential buyers should panic as rates may go up in 2017? No, it doesn’t.

  • The Federal Funding rate does not impact mortgage rates. When the Federal Funding rate increases, rates go up on second mortgages, credit cards, car loans, etc.
  • Mortgage Rates go up and down along with the value of Mortgage Backed Security Bonds. To see plenty of previous posts on this topic, do a search for “MBS” in the “search this site” box in the upper right corner of the page.
  • The last time the Feds raised the Federal Funding Rate, Mortgage Rates improved. Rates are roughly 0.500% lower now than they were in December 2015.

So what to make of this? Don’t make home buying plans on what the Feds may or may not do. Don’t buy a home out of fear of rates going up. The best strategy is to get prequalified to buy a home, and purchase a home when the time is right for you… and not what the Feds or media dictates.

Looking to buy a home in Georgia? Contact me today. I’ll get you prequalified and get you ready for your home buying experience.

 

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