Posts Tagged ‘FICO’

Credit scores on the rise

September 11, 2018

Some consumers credit scores are going up! A recent overhaul in the way the major credit bureaus factor in negative credit information is prompting millions of consumers’ credit scores to rise. The main reason? The removal of some collection items.

Over the past 12 months, collection items were removed from eight million consumers’ credit reports. The NY Federal Reserve said consumers who had at least one collection item/account removed from their credit reports saw on average an 11-point increase to their scores. Why the change in collection items being part of the credit score? Some collection categories often have mistakes/errors that lower potential buyers credit scores and keep them out of the borrowing market.

The three main bureaus (Equifax, Experian PLC, and TransUnion) all agreed to rework credit reports reports stemming from a 2015 settlement. In the settlement, some of the collection items removed were non-loan related items such as gym memberships, library fines, traffic tickets, and some instances of medical debt. This change would not include credit cards or loan related accounts. Those type of accounts that enter into a collection category will still negatively impact a potential home buyer’s credit score. any firms agreed to remove some non-loan related items that were sent to collection firms, such as gym memberships, library fines, and traffic tickets. They also agreed to strike medical-debt collections that have been paid by a patient’s insurance company. According to an article in the Wall Street Journal, those seeing the biggest boost to their credit scores are those with a score in the mid 600s.

This is a great move by the credit bureaus. Sometimes it is easier to prove that one owes money with the account in good standing, and harder to prove one no longer owes a debt. Some debts such as tax liens, credit card collections, back taxes, car/student loans in default, etc. are easier to prove the debt is actually in arrears. Arguing about a library account in a city one may have lived in 5 years ago becomes troubling and difficult to prove. While these accounts aren’t being removed from a credit report/history, they are being ignored when it comes to producing the credit score.

Mortgage Mythbusting

October 21, 2014

blog-author-clayjeffreys3

Continuing our educational series. Today, we’ll focus on mythbusting.

To contact any of us at Dunwoody Mortgage Services, click here!

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Loan Guidelines Easing

November 19, 2013

blog-author-clayjeffreys3

I know what you are thinking from reading the title to this post… “really?!? After 3% down conventional loans have gone away, you are saying loan guidelines are easing?”

Yes. Yes, I am. It is true that the minimum down payment for conventional loans is now 5%. That said, guidelines have eased in two other areas.

Credit Scores – home buyers can now qualify to purchase a home (or refinance a home) with as little as 5% down and a credit score as low as 620. Depending on a lender’s guidelines, most stopped offering conventional loans with less than a 20% down payment to borrowers with credit scores under 660. That is no longer the case.

Whether a 5%, 10% or 50% down payment, buyers can now qualify for a conventional loan with a credit score as low as 620.

Debt to Income Ratios – while Automated Underwriting might approve someone with a debt to income ratio of 51%, most lenders stopped these ratios at 45% if mortgage insurance was required and 50% if no mortgage insurance is on the loan. Not anymore.

Regardless of the debt to income ratio, as long as you get Automated Underwriting approval on loans that do not require mortgage insurance, you can move forward with the loan application to buy a home.

The minimum down payment for conventional loans has increased to 5%, but recent changes to the minimum credit score and maximum debt to income ratio will make it easier to qualify. Want to know how this could impact you? If the property is in Georgia, I can help. Contact me today to get started.

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Re-pull of Credit Report – Reviewing the Updated Report

September 18, 2012

Today is the third and final part in a series on the re-pulling of one’s credit report when applying for a loan. The first post discussed why this is required, and gave a helpful list of things not to do in order to avoid problems with the re-pull. The second post discussed the “new-look” loan approval process and how the re-pull can impact loan approval. Today, we’ll focus on what an underwriter looks for on the re-pulled credit report.

When reviewing the re-pulled report, an underwriter is mainly looking for three things:

  • Credit Scores: this is the quickest and easiest thing an underwriter will check on the re-pull of the credit report. If one hasn’t opened a new credit card account, charged up existing credit cards, bought a car, etc., the credit scores should be the same. Just follow the steps outlined from the first post, and all should be fine.
  • Review Minimum Payment Due Figures: each credit card, student loan, car payment, etc. has a minimum payment due listed on the credit report. On the re-pull of the report, the minimum amount due is compared to the original. If there are no new credit accounts OR one hasn’t charged up existing accounts, then the underwriter will move on to the last item they’ll be reviewing on the re-pulled report.
  • Recent Inquiries: I know what some of you reading this may be thinking… “I can finance new furniture or a new car before closing because there won’t be time for the newly financed account to show up on my credit report.”… That is true, there won’t be time. BUT… an inquiry is instantly added to your report. If an underwriter sees a recent inquiry made by someone other than the lender underwriting the loan, the borrower will have to explain why the inquiry was made.

#1. It is a quick and easy explanation if an inquiry was made while shopping for a mortgage. The borrower would write a letter saying “I applied for a mortgage with ABC Bank, but decided not to use them for my mortgage.” Done and done and on to closing.

#2. However, if it is something else, it could delay closing until it can be established how much the new minimum payment will be AND an underwriter re-review your file with the new debt obligation – not fun!

Again, this can all be avoided by not applying for ANY new credit (cards, furniture, car) or charging up existing credit cards. It all comes down to this… what would you rather do? Move in on time to that new home OR have a possible delay in closing, interest rate changed, or possibly have the loan denied by financing a car for the new garage OR financing furniture for the new living room. You’ll have plenty of time to finance a car and/or furniture after closing.

Fannie Mae’s Loan Quality Initiative is one of many hoops borrowers have to jump through when applying for a mortgage. Fortunately, this is actually one of the easier ones to avoid. If you are buying a home in the state of Georgia and would like to work with a professional who is aware of the changes in the industry, call me today to get started. I would be happy to go discuss all of the stages and potential hurdles of the loan process.

Re-pull of Credit Report – Loan Approval Process

September 11, 2012

In part 1 of the series, we discussed the Loan Quality Initiative started by Fannie Mae. That post included the reason behind the initiative and some easy steps to take to avoid any complications during the loan process.

This week we’ll focus on the loan approval process itself.

Prior to Fannie Mae’s Loan Quality Initiative, the loan process has one less step in it. If someone was looking to buy or refinance a home, they would first apply for a mortgage. Then they would have a credit check. If everything was in order, then the loan would be submitted to underwriting for approval. Once the loan was approved by the underwriter, then we’d close the loan.

Now there is one extra step between underwriting and closing that can definitely impact the approval process. Lenders are required to re-pull the credit report right before closing. This makes the loan approval process look more like applying for the loan, credit check, underwriting approval, re-credit check (which is confirming the underwriting approval) and then closing.

Did you notice that extra step? This means a loan isn’t officially approved until the credit score re-pull step is completed. Why?

If a borrower has opened a new credit account, financed a car, or closed a credit account, it can impact a credit report in a variety of ways:

  • a newly opened credit account can negatively impact a credit score. If the credit score goes down too much, it could also negatively impact the interest rate
  • a newly financed car can also reduce one’s credit score. A newly financed car can also drastically impact the debt to income ratio. If this ratio is pushed up too high, it could cause someone to no longer qualify for the mortgage
  • both of these examples would put the loan back into underwriting for a second review. This could delay closing.

It is easy to avoid this pitfall. Simply follow the steps outlined in Part 1 of this series. If you do not change your credit report by opening or closing credit accounts, you’ll be fine when it comes to the review of the re-pulled credit report.

If you are looking to buy or refinance a home in the state of Georgia and would like to work with a loan officer who is aware of the coming credit re-pull and can help you avoid this potential pitfall, I know just the person to connect you with :-). Contact me today to get started.

Next week, the third and final part of the series. We’ll discuss the things an underwriter will look for on the re-pull of the credit report.

Re-pull of Credit Report – Why it’s Required

September 4, 2012

There are no ifs, ands, or buts about it… if you are applying for a mortgage, your credit report will be re-pulled prior to closing. If you are not careful, this could cause your loan terms to be  reviewed, revised, and in some rare cases, denied.

This will be the first of a three part series reviewing this change. For this post, let’s talk about why a borrower’s credit report is re-pulled. The next post will cover what the loan approval process looks like now along with how a loan could be impacted by the re-pull. We’ll conclude the series by reviewing what an underwriter is looking for when your credit is re-pulled.

The re-pulling of one’s credit report is part of Fannie Mae’s Loan Quality Initiative. This loan quality initiative started as a way to ensure borrowers who were qualified for a loan at the start of the mortgage process STILL qualify for that loan at closing. The initiative looks to ensure that borrowers haven’t applied for new credit that may hinder them from making the new mortgage payment.

This has been in place for quite some time now, so loan officers and underwriters are well aware of the process, what to expect, and how to advise their clients. The easiest thing to do is NOT change your credit once a loan officer pulls your credit and determines you are prequalified for a loan. Problems can be avoided by taking the following steps through the loan closing:

  • do not apply for new credit. This includes major credit cards and store credit cards.
  • do not finance new furniture on a furniture store’s credit
  • do not make or finance a major purchase such as a car, boat or home appliances. Even if paying in cash, you might accidentally use up too much cash and not have enough left over for the down payment on the new loan.
  • do not drastically charge up your existing credit cards
  • do not close existing credit accounts

I advise my clients to continue to operate as they normally do on a month-to-month basis, but do NOT change their credit report. This includes getting new credit AND closing existing credit. Once we’ve closed on the loan, then finance that new furniture… get that new credit card… payoff a current credit account, etc. By taking these steps, you can help to ensure that your loan process will run smoothly from start to finish.

Looking to work with a professional who can help guide you around these potential pitfalls (and more)? If the property is in the state of Georgia, reach out to me to get started on your new loan today!

Next time, we’ll look at the loan approval process along with how a loan could be impacted by the credit re-pull.