Showing posts with label Credit Inquires impact on Credit Score. Show all posts
Showing posts with label Credit Inquires impact on Credit Score. Show all posts

Kentucky Mortgage Approval Underwriting Myths Debunked for FHA, VA, USDA and Fannie Mae

 Mortgage Approval Underwriting Myths Debunked

Getting approved for a loan is not as hard as some make it. The 3C approach breaks it down in its simplest form so no need to overthink or complicate with “what if’s” or variable situations and these factors are the same in every state. They all have to line up for your loan to be approved but here there are in order of significance

Capacity - No matter if your credit is in 800’s the ability to afford a loan (capacity aka DTI) is the MOST important C and why most applications either get denied or reduced. Income is EVERYTHING.

To get a conforming (FHA / VA / Conventional) loan you need 2yrs of verifiable Full time income even if it’s pieced together with different employers with 2yrs W2’s and your most recent paystub if you’re an employee and OT and/or bonus cannot be used if you’ve been with your employer for less than 2yrs.

If you have part time employment as well that income cannot be used unless you’ve worked both jobs for at least 2yrs UNLESS your P/T job is the exact same as your F/T job and your hours are not variable then in most cases you can get an exception if you’ve been there for at least 1yr. If you’re self employed 2 most recent tax returns with positive income on line 31 of your schedule C.

If homeownership is your goal, then don’t be cheap and have a certified tax preparer prepare your taxes because it’s likely you’ll need certain docs to get approved only they can provide. Also DO NOT write off all your income to avoid paying the IRS taxes because this will disqualify you from a loan and you’ll have to get a more expensive loan with a bigger down payment.

Credit - many people think this is the most important but it’s not but it is important. With a high enough capacity (low DTI) I’ve seen clients with minimum scores get approved. FHA requires 580, VA does not have a minimum score requirement and while some lenders can do down in the 500’s generally most lenders do not go below 580, and conventional requires 620.

Having said all that just because you meet the minimum score does not mean you’ll get an approval before credit profile (positive tradeline history, collection activity, credit usage) is what matters most. I’ve seen applicants with 680+ get denied for conventional loans because they have a poor credit profile or low capacity (higher DTI).

FHA is a little more forgiving which is why they are easier loans to get than conventional. Obviously the higher the score, the better the chances are for approval but high scores aren’t needed if capacity and collateral are strong.

Collateral - aka down payment. Underwriters request either 1 bank statement for FHA or 2 bank statements for conventional and all they are looking for is verification of cash to close, large deposit (FHA more than 1% of loan amount deposited in 1 deposit) activity and reserves if needed, not spending habits. Large purchases are irrelevant and NSF’s can be explained with an explanation letter. The higher the down payment in percentages (3.5 or 5%, 10%, 15%, 20% etc…) not dollars ($2000 or $5000 more than required) then the lower the risk and higher chance of approval especially for conventional loans. Plus dollars don’t noticeably reduce your monthly payment but percentages do.

Overlays - additional restrictions some lenders have in addition to standard mortgage guidelines. If your lender is telling you anything more is required than what’s posted above it’s because they have overlays which make it more difficult to get approved with them.
Example - Veteran’s United will not take credit scores under 620 = OVERLAY

If you want a personalized answer for your unique situation call, text, or email me or visit my website below:

Joel Lobb
Mortgage Loan Officer

Individual NMLS ID #57916

American Mortgage Solutions, Inc.
10602 Timberwood Circle
Louisville, KY 40223
Company NMLS ID #1364

Text/call: 502-905-3708


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Credit Score Information for KY Home buyers

Credit Score Information for KY Home buyers 

When it comes to your credit score, believing the wrong information could literally cost you.

What Types of Credit Pulls Really Harm My Score?

Research shows that people who apply for new credit too frequently indicate a higher credit risk. For this reason, scoring models like FICO® factor in the number of inquiries on your credit reports, which leads some people to incorrectly believe that having your credit pulled automatically damages your score. That is not exactly the case — and here’s the scoop:
  • It is true that some inquiries can potentially harm your credit. Hard inquiries, like a lender pulling your credit report, could affect your score. But soft inquiries, like checking your own credit score, will not.For example: If you apply for numerous credit cards, then it will probably negatively impact your credit score. But if you have multiple credit pulls from mortgage companies, student loan providers, or auto lenders because you are rate shopping, then there might be a less substantial impact on your score because rate shopping doesn’t indicate an elevated credit risk — as long as multiple inquires occur within a small window of time (usually between 14 and 45 days).

Should I Close Paid-Off Credit Cards?

Another common credit myth is that paid-off credit card accounts should be closed. According to FICO, credit card accounts should never be closed for the sole purpose of raising a credit score. Closing a zero-balance credit card account often has the unintended effect of raising your revolving utilization ratio — or your available credit relative to your outstanding account balances.
When you close an unused account, the available credit limit is no longer factored into your revolving utilization. If you carry an outstanding balance on any other credit cards, closing a zero-balance account could result in a higher overall revolving utilization ratio, which in turn could cause your credit score to drop.

Is 30% the Magic Number for Credit Card Utilization?

When it comes to credit card utilization, a lower percentage is generally better. One credit scoring myth that has confused a lot of consumers over the years is the idea that 30% is the magic number for credit card utilization. According to FICO, that isn’t true.
If you want to have a healthy credit score, aim to pay off your credit card balances in full each month. Pay by the statement closing date, and you should see that the account balance on your credit report is reflected as zero — and note that a zero balance can lead to lower revolving credit utilization (and generally a better credit score).

Credit Scores Required for Kentucky Mortgage Loan Approvals for FHA, VA,...

Most lenders will wants a middle credit score of 620 for KY First Time Home Buyers looking to go no money down. The two most used no money down home loans in Kentucky being USDA Rural Housing and KHC with their down payment assistance will want a 620 middle score on their programs.

If you have access to 3.5% down payment, you can go FHA and secure a 30 year fixed rate mortgage with some lenders with a 580 credit score. Even though FHA on paper says they will go down to 500 credit score with at least 10% down payment, you will find it hard to get the loan approved because lenders will create overlays to protect their interest and maintain a good standing with FHA and HUD.

Another popular no money down loan is VA. Most VA lenders will want a 620 middle credit score but like FHA, VA on paper says they will go down to a 500 score, but good luck finding a lender for that scenario.

A lot of times if your scores are in the high 500’s or low 600’s range, we can do a rapid rescore and get your scores improved within 30 days.

Why you don't need an 800 credit score for a Kentucky Mortgage Loan Approval

Your credit score — that sometimes mysterious number that reflects how responsible you are with your credit — plays a gigantic role in your overall financial life.
Pretty much any time you apply for credit, someone (or in some cases, a computer) will be looking at that number to determine if they are willing to extend that credit to you and, if so, at what rate. That applies whether you’re applying for a new credit card, a car loan or a mortgage.
Hopefully you know what your credit score is (if not, we’ll help you find out), but do you know if your credit score is good?
In this article, we’ll cover what money expert Clark Howard and others consider a good credit score, where your can track yourscore, and how to improve it if it needs work!

What is a good credit score?

First, it’s important to know that your FICO credit score (by far the score used by most lenders) is a three-digit number that can range from 300 to 850, with 850 being the absolute highest score you can achieve.
So, how do things break out along that range when it comes to “good” and “poor” scores? Here’s how credit reporting agency Experian sees it:

Credit score chart

As you can see, according to this chart, the majority of Americans have “Good,” “Very Good,” or “Exceptional” scores.

In fact, according to, as of 2016 (the latest numbers available), the average FICO score nationally was 699. That was an all-time high!

But different creditors have different ideas about what makes a “good” credit score, and for that reason your ability to get credit and the rate you’re offered can vary from lender to lender. This is why some people aim for a score of 850 — something Clark says “you’re crazy if you obsess with.”

You don’t need to aim nearly that high.

“If you can get up to around a 760, you’re going to get the same benefits, the same offers, that someone who has an 840 score is going to get,” says Beverly Harzog, Credit Card Expert and Consumer Finance Analyst for U.S. News & World Report.

That said, if your credit score is currently in, say, the low 600s, 760 might seem a long way away. That’s still no reason to be discouraged!
There are other numbers that can make a huge difference in the offers you receive and the rates you can get on loans, Clark says:
“There are certain breakpoints where things get easier for you. One that’s really important is being around a 680. That’s a point at which people look at you differently than when you’re below that.”

You can also get free credit reports (which are more comprehensive than what you get with Credit Karma or Credit Sesame) from all three major credit reporting bureaus once a year at

How can you improve your credit score?

To improve your credit score, you should address each one of the factors that goes into calculating your score individually. According to, those factors are:

Credit score factors

Payment History

As you can see from the graphic, the single most important factor is your payment history. That means that not paying your bills on time can do serious damage to your credit score. Even if you’ve had some late payments in the past, you can improve your score going forward by paying each and every bill on time.

Amounts Owed

The second most important factor is the amount you owe on your credit lines. This is calculated as a percentage: the amount you owe divided by the total amount of credit you have available. It’s best to keep this under 30% — even better if you can keep it under 10%.
So, if your total credit line (between all of your credit cards and other loans) is $10,000, it’s good to owe less than $3,000 and great if you owe less than $1,000.
Length of Credit History
The next most important factor is your length of credit history. This is determined by the date you opened your earliest credit account that remains open today. Since you can’t go back in time and open an account any earlier, the most important thing you can do in this area is make sure you don’t close any of your oldest accounts.

New Credit and Credit Mix
Finally, accounting for 10% each of your credit score are New Credit and Credit Mix.
New Credit means accounts that you either open or apply for that result in what’s called an “inquiry” to your account. Almost any time you apply for credit (whether you are approved or not) your score will drop a bit. It usually doesn’t take long to recover, but the important thing to remember here is to only apply for credit you really need. If you apply for every card offer you receive, your score will suffer.
Credit mix refers to the different types of credit you have. Again, this one is not a huge deal, but someone with credit cards, a mortgage, and a car loan will general be judged more favorably than someone who just holds credit cards

Full article link below

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223
Company ID #1364 | MB73346

Text/call 502-905-3708
If you are an individual with disabilities who needs accommodation, or you are having difficulty using our website to apply for a loan, please contact us at 502-905-3708.
Disclaimer: No statement on this site is a commitment to make a loan. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet Loan-to-Value requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines and are subject to change without notice based on applicant's eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over the life of a loan. Reduction in payments may reflect a longer loan term. Terms of any loan may be subject to payment of points and fees by the applicant  Equal Opportunity Lender. NMLS#57916
-- Some products and services may not be available in all states. Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. The content in this marketing advertisement has not been approved, reviewed, sponsored or endorsed by any department or government agency. Rates are subject to change and are subject to borrower(s) qualification.

Credit Inquiries--How much do they effect my score?

Credit Inquiries Are A Formal Process

A "credit inquiry" is a formal request to review a person's credit report.
Credit inquires are grouped with other traits into a credit-scoring category called "New Credit". New Credit represents 10 percent a person's complete credit score.  On the scale of 300-850, therefore, credit inquiries represent a tiny portion of a maximum of 85 points to a FICO.
There are many times of credit inquiries, but really only 4 of the set can impact a person's credit score:
1.    A credit check for a mortgage loan
2.    A credit check for an auto loan
3.    A credit check for a credit card application
4.    A credit check for a store credit card, or consumer loan
These 4 types are singled out because, in each case, the inquiry is made by the applicant in order to get access to more debt.  Because extra debt increases the probability of default, credit inquiries can sometimes foreshadow trouble.
Even then, however, the risk of default varies by application type.
For example, credit card applications can be more damaging to a credit score than a mortgage application.  This is because credit card debts tend to revolve higher over time versus a mortgage which eventually pays down to $0.
So, all things equal, a credit card application will harm your credit score more than an application for a home loan.

A Credit Inquiry Lowers Your FICO By 5 Points

When compared to the other credit scoring elements, Credit Inquiries is a relative nothing.
In the official FICO scoring model, Payment History and Credit Utilization account for 65% of a score, combined, and the amount of time during which you've had credit to your name accounts for 15%.  These three areas are over-weighted because the bureaus are more concerned with what you've already done with your credit versus what you might do with more of it.
Your credit past is the best clue to your credit future and it's one of two reasons why it's okay to give your social security number to as many lenders as you want. The impact of a credit inquiry is tiny next to the value of being a Model Credit Citizen.
A mortgage credit inquiry is estimated to lower a credit score by just 5 points.
Unfortunately, we'll never know for sure because the very act of examining the credit score causes it to move. In Chemistry, this is called the Heisenberg Principle.  On MTV, it's called The Jersey Shore Syndrome.  Put a camera on something, and it changes.

The Credit Bureaus Don't Hit Your FICO Twice

The second reason you should shop around with lenders is that -- unlike applying for multiple credit cards -- applying for multiple mortgages won't count as multiple, consumer-initiated inquiries. This is a common thing.
You might apply for 5 credit cards and use them all. You're not going to be approved for 5 mortgages.
As such, the credit bureaus have made it formal policy to permit "rate shopping".  Talk to as many lenders as you want in a 14-day time frame; have your credit checked as often as you'd like; compare rates and fees.  All of the inquiries will be lumped into a single application.
It's good for you and it's good for the bureaus. Your credit scores stay high and TransUnion, Equifax and Experian collect more fees from the banks.

Advice From The Credit Bureaus On Getting Low Rates

To promote rate shopping and to lessen The Fear of Credit Inquiry, the people behind the FICO brand spell out for you the best way to get the best mortgage rates possible:
1.    If you want the best rate, you should "shop around"
2.    Limit rate shopping to 14-day timespan to keep your credit scores high
3.    Mortgage lenders can't give accurate rate quotes without a credit score so give up your social security number
Metaphorically, not letting your lender see your FICO is like not letting your doctor check your blood pressure. You'll get a diagnosis when the appointment is over -- it just might not be the right one.

Joel Lobb
Senior Mortgage Loan Officer


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What Credit Score is needed for a Kentucky Mortgage VA loans Loan in 2013?

 Kentucky Mortgage VA loans are 100-percent financed and set aside for active and retired military, along with their families. There is no minimum credit score to qualify, though a better credit score will get you a better interest rate. Typically to get approved on A  Kentucky Mortgage VA loanyou will need a 620 mid score with no bankruptcies or foreclosures in last 2 years with clean credit since BK or Foreclosures.

The better your score, the better your interest rate is likely to be. If your score is between 620 and 639—considered a risky score by some creditors—you could pay an interest rate of 5.718 percent on a $300,000, 30-year conventional mortgage. As of mid-August, 2010, If your score is at the high end, 760 to 850, your interest rate could be 4.129 percent on the same loan. A score of 650 may net you a rate of 5.172 percent.

Rapid Rescore for A Louisville Kentucky Mortgage Loan Approval

Rapid Rescore for A Louisville Kentucky Mortgage Loan Approval

Score Plus/Rescoring

Score Plus – Rapid Rescore – The Score Plus program allows Credit Plus to update credit information with the three national repositories in 5-7 business days. Credit Plus will forward documents supplied by your borrower directly to Equifax, TransUnion and Experian for a rush investigation. The repositories will update credit information and trade lines on their credit reports.

How long does it take to update credit information? While Score Plus is unable to guarantee a completion date, turnaround time to update credit information is typically 5-7 business days from the time your request is received. If the bureau rejects the documents, you will be promptly notified. 

What types of credit information can Score Plus update?
Given a verifiable document from the creditor, Score Plus can:
Remove derogatory information and accounts that were reported in error
Update an account that has been paid in full and closed
Update the status of a collection
Update a balance or paid-in-full status
Update an account to show that it was included in a bankruptcy
What documentation is required for Score Plus?
Bureaus require that all documents submitted:
MUST be typed on the creditor’s letterhead
MUST come from the creditor reporting the account
MUST state specifically how the information should be changed
MUST include the date, complete account number, and the name and contact phone number of the creditor

5 fast fixes for your credit score

5 fast fixes for your credit score

5 fast fixes for your credit score

woman upset over bills @ Getty images
Mortgage borrowers today understand the need for a high credit score. You won't have access to the best mortgage rates unless your credit score is 740 or higher.
If you're in the market for home loan and simply need to give your score a little boost before submitting your application, experts say there are several things mortgage borrowers can do to push their scores up.
Here are five methods to raise your credit score quickly:

No. 1: Pay down credit card balances

"People with the highest FICO scores carry balances on their credit cards that are less than 20% of their total available credit," says Anthony A. Sprauve, the director of public relations for in San Francisco. "Your balances account for 30% of your credit score."

While is it impossible to say exactly how much any one action will improve your score, Rich Arzaga, the founder and CEO of Cornerstone Wealth Management in San Ramon, Calif., says, "Paying down debt is an easier and faster way to improve your score than fighting derogatory credit history, and it's more in your control."
Michael McNamara, regional vice president of United One Resources in Wilkes-Barre, Pa., which provides rapid rescoring services for lenders, says you should pay down your debt to less than 30% of your credit limit. Transferring a balance from one credit card to another is not likely to improve your score much because total utilization of credit is more important than each individual debt, he says.

No. 2: Fix credit report errors

McNamara says that while every individual is different, he has seen credit scores rise by as much as 100 points after a credit report error has been removed.
"For example, a common item is a medical collection that you don't know about because you thought the insurance company had taken care of the bill," says McNamara. "Sometimes you can have it removed if you can prove it's invalid, and sometimes it can help to pay it and then have it removed."

No. 3: Eliminate disputed accounts

Kevin Quaid, branch manager with FitzGerald Financial Group, a division of Monarch Bank in Alexandria, Va., says disputed items on your credit report should be removed, particularly if you are applying for a conventional loan guaranteed by Fannie Mae or Freddie Mac.
"Fannie Mae says disputed items have to be removed, so the borrower must send a letter to the creditor and the credit bureau that says they are no longer disputing the item," says Quaid. "Freddie Mac puts less weight on this as long as you don't have any late payments."
Disputed accounts appear as a derogatory item to Fannie Mae and Freddie Mac, said Gail Kullman, a senior loan officer with PrimeLending in Alexandria, Va., in an email. She recommends contacting the creditor directly and asking to have it resolved and removed immediately from your credit report.

No. 4: Use an old credit card or apply for a new one

While you may assume your credit score is high because you don't use credit cards, your score will actually improve if you can prove you use credit wisely. Unused old accounts won't have a positive impact on your score unless you use them occasionally.
"If you have four or five accounts with no activity and then use one and pay off the balance immediately, your score will go up," says McNamara.
McNamara says that while most people should not apply for additional credit when applying for a mortgage, sometimes a customer who lacks a recent credit history can improve his or her score by being approved for a new credit card and then using it once.

No. 5: Don't close any accounts

Arzaga says opening new, unnecessary credit cards and closing unused credit card accounts are equally likely to negatively impact your score.
"Closing accounts is not advised, as it looks better to have more credit extended to you than what you are using," said Kullman in an email.
Consumers can use these strategies to improve their credit scores in a short time.
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Joel Lobb (NMLS#57916)Senior  Loan Officer
502-905-3708 cell
502-813-2795 fax

Key Financial Mortgage Co. (NMLS #1800)*
107 South Hurstbourne Parkway*
Louisville, KY 40222*