THE TOP 10 CREDIT DOs AND DON’Ts DURING THE LOAN PROCESS

Following are some helpful tips to avoid the credit mistakes many borrowers make during the loan process:

1. DON’T APPLY FOR NEW CREDIT OF ANY KIND, including those “You have been pre-approved” credit card invitations that you receive in the mail. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately. Depending on the elements in your current credit report, you could lose anywhere from 2-50 points for one hard inquiry.

2. DON’T PAY OFF COLLECTIONS OR CHARGE-OFFS during the loan process. Paying collections will decrease the credit score immediately due to the date of last activity becoming recent. If you want to pay off old accounts, do it through closing and make sure that 1) you validate that the debt is yours, and 2) that the creditor agrees to give you a letter of deletion.

3. DON’T CLOSE CREDIT CARD ACCOUNTS. If you close a credit card account it will appear to the FICO that your debt ratio has gone up. Also, closing a card will affect other factors in the score such as length of credit history. If you have to close a credit card account, do it after closing, and make sure it is a more recent account.

4. DON’T MAX OUT OR OVER-CHARGE YOUR CREDIT CARD ACCOUNTS. This is the fastest way to bring your score down 50-100 points immediately. Try to keep your credit card balances below 30% of their available limit at all times during the loan process. If you decide to pay down balances, do it across the board - make an extra payment on all of your cards at the same time.

5. DON’T CONSOLIDATE YOUR DEBT ONTO 1 OR 2 CREDIT CARDS. It seems like it would be the smart thing to do, however, when you consolidate all of your debt onto one card, it appears that you are maxed out on that card, and the system will penalize you as mentioned above in 4. If you want to save money on credit card interest rates, wait until after closing.

6. DON’T DO ANYTHING TO CAUSE A RED FLAG TO BE RAISED BY THE SCORING SYSTEM. This would include adding new accounts, co-signing on a loan, changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.

7. DO JOIN A CREDIT WATCH PROGRAM. If you join a credit watch program, you can check your reports weekly, or even daily depending on the program you select. (When you pull your own reports, you don’t get dinged for a hard inquiry.) This way, if something does show up on your reports that has caused your score to go down, you’ll know it immediately, and you may be able to take care of the problem before closing.

8. DO STAY CURRENT ON EXISTING ACCOUNTS. Like your mortgage and car payments. One 30-day late can cost you anywhere from 30-75.

9. DO CONTINUE TO USE YOUR CREDIT AS NORMAL. Red flags are raised easily with the scoring system. If it appears that you are changing your pattern, it will raise a red flag, and your score could go down.

10. DO CALL YOUR LOAN ORIGINATOR if you receive something in the mail from a creditor or collection agency that you believe may affect your score during the loan process. Your broker may be able to supply you with the resources you need to stop any derogatory reporting to the bureaus.

Keep in mind that the lender will pull their own credit report at closing, and if your scores have dropped, you may no longer qualify for the rate that was underwritten and the final approval may come back with a higher rate. All lenders use your credit score to determine which loan criteria you fit and every loan has different criteria attached (the loan-to-value and debt-to-income ratios, etc.) Many borrowers do not understand this, and mistakenly think the loan officer is “baiting and switching.” If an issue comes up and the lender decides you do not qualify for a certain loan, the only thing a loan officer can do is search for other lenders who might be willing to give the rate and program they thought you qualified for. If you have good credit and know your score, the loan officer can give you an idea of what he or she can offer based on what you state. But do not expect them to stand by their quote if your scores are lower when they pull your credit.

New changes from FANNIE, FREDDIE, & FHA

Week after week I write about different topics that affect your purchasing or refinancing of your home. This week I want to discuss some changes in the mortgage lending guidelines that will directly affect you if you are purchasing or refinancing. These changes will make it more difficult to qualify for a mortgage because the monthly payments will possibly be higher and/or the closing costs may be higher. Most mortgages being applied for, approved and closed today are either FHA, FNMA (Fannie) or FHLMC (Freddie) mortgage loans. The changes that I am speaking about will affect these loans.
Let’s begin with the changes to FHA.
There was an important announcement from FHA. As of this coming April 18th, minimum down-payments are still 3.5%, but the monthly Mortgage Insurance Premiums will increase slightly for FHA loans.

For example, on a $400,000 sales price, with the minimum down-payment the mortgage will increase approximately $61 per month.

However, this change will help strengthen FHA, which is important since some estimates show that FHA loans represent nearly 50% of all loans being done today.

Even though FHA has slightly increased their rates, the FHA loan is still a good value for clients with little to put down. Rest assured that the FHA loan is still a very viable option worth considering.

Higher Fees Coming From Fannie and Freddie!
What Will This Mean to You?
Do you have less than 25% down to put on a home?

Do you need a loan-term longer than fifteen years?

Is your credit score less than exceptional?

If you answered yes to these questions, you could soon be paying more to get a mortgage.

Fannie Mae and Freddie Mac are raising risk fees that are charged to lenders for the first time since 2009, and these increases will affect most loans sent to Freddie Mac (beginning March 1) and Fannie Mae (beginning April 1).

Here's an example: Say you are purchasing a $250,000 home, putting 20% down, and your credit score is 720. Your risk fee will now be $1,000 (versus $500 before). And if your credit score is 680, the fee will now be $3,500 (versus $3,000 before).
Lower credit scores will directly impact your mortgage rate or closing costs. It is therefore very important to know what your credit looks like in advance of purchasing a home to make sure that you carefully review you credit report and optimize your credit score.
This last change is a good one!!

PMI Tax Deductibility Extended Through 2011
There's great news for homeowners! Congress recently extended legislation making private mortgage insurance (PMI) premiums tax deductible through 2011!

So why is this significant? PMI can help people buy a home sooner, by enabling them to put less than 20% of the purchase price down when buying a home. This increase in purchasing power can sometimes be the difference between affording the home of your dreams...or not.

What's more, this deduction is not just for first-time home-buyers, so, it can be used by current homeowners looking to upgrade to a new home. However, it does only apply to "qualified" residences, which typically include a primary residence and a vacation home, but not an investment property.

It's important to note that PMI is only tax deductible for homeowners with adjusted gross incomes of less than $110,000. Borrowers with adjusted gross incomes up to $100,000 may be able to deduct 100% of their 2011 premiums. Deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000.

As with any deduction, be sure to consult your tax advisor if you have any questions.

THE BOOK IS HERE

Yes the book that I wrote with my sister Yael has finally been published!! "Real Estate Selling Success" breakthrough Sales & Marketing Strategies For Real Estate Agents!!!!

More info on how to get a copy etc will follow!!