Showing posts with label credit. Show all posts
Showing posts with label credit. Show all posts

Kentucky First Time Home Buyer Questions Answered:

What will my mortgage rate be?


We’ll begin with what always seems to be everyone’s number one concern, saving money. Similar to any other monthly payments you’re attempting to negotiate, it depends on a lot of factors. But we can at least clear up a few items to give you an idea of how things will go. Ultimately, the more risk you present to the mortgage lender, the higher your mortgage rate. So, if you have poor credit and come in with a low, down payment, expect a higher interest rate relative to someone with a flawless credit history and a large down payment. The higher interest rate is intended to compensate the lender for the potential of greater risk of a missed payment as data proves those with questionable credit and low down payments are more likely to fall behind on their mortgages. The property itself can also affect mortgage rate pricing – if it’s a condo or multi-unit investment property, expect a higher rate, all else being equal. Then it’s up to you to take the time to shop around, as you would any other important purchase. Two borrowers with identical loan scenarios may receive completely different rates based on shopping alone. And someone worse off on paper could actually obtain a lower rate than a so-called prime borrower simply by taking the time to gather several quotes instead of just one. For the record, a Freddie Mac study proved that home buyers who obtained more than one quote received a lower rate. There is no single answer here, but the more time you put into improving your financial position, shopping different mortgage lenders, and familiarizing yourself with the process so you can effectively negotiate, the better off you’ll be. And of course, you can keep an eye on average mortgage rates to get a ballpark estimate of what’s currently being offered.  To sum it up, compare mortgage rates as you would anything you buy, but consider the fact that you could be paying your mortgage for the next 30 years. So put in even more time!

How long is my mortgage rate good for?


Once you do find that magic mortgage rate, you’ll probably be wondering how long it’s actually good for. If you’re not asking that question, you should be because rates aren’t set in stone unless you specifically ask them to be. By that, we mean locking in the mortgage rate you negotiate or agree upon with the lender so even if rates change from one day to the next, your rate won’t. Otherwise, you’re merely floating your mortgage rate, and thereby taking your chances. Without a rate lock, it’s really just a rate quote.  Lenders will often charge a fee to lock in an interest rate. Rates can generally be locked in for anywhere from 15 to 90 days or longer, with shorter lock periods cheaper than longer ones. But pay attention to the expiration date of your lock, because you will need to close the loan before that date or you will have to renew the lock.



How do you calculate a mortgage payment?


At some point in the mortgage process, you’re going to be searching for a mortgage calculator to figure out your proposed payment.  You can see how monthly payments on mortgage loans are truly calculated using the real math, or you can simply find a payment calculator that does all the work and tells you nothing about how it comes up with the final sum.  Just make sure you use a mortgage calculator that considers the entire housing payment, including taxes, insurance, HOA dues, and so forth. Otherwise, you’re not seeing the complete picture.

What is a mortgage refinance?


As the name implies, refinancing simply means obtaining new financing for something you already own (or partially own, like real estate).  It’s kind of like a balance transfer where you move your loan from one lender to another to get better terms, except it’s a mortgage payoff.of your old mortgage loan for a new mortgage loan. If you currently have a rate of 6% on your mortgage, but see that refinance rates are now 4%, a refinance could make sense and save you a lot of money over time. You’d essentially have the lender pay off your existing loan with a brand-new loan at the lower interest rate. There is also the cash-out refinance, which allows you to tap into your home equity while also changing the rate and term of your existing mortgage. So, if you currently owe $200,000, but your home is worth $500,000, you could potentially take out $100k cash and your new loan amount would be $300,000. Your monthly payments may not even go up if interest rates are favorable, and you’d have that cash to use for whatever you wish. Be sure to use a refinance calculator or payoff calculator to help guide your decision, and consider the loan term, otherwise known as your expected tenure in the property

How much will my housing payment really be?


Like we mentioned in the related question above, be sure to factor in all the elements that go into a mortgage payment, not just the principal and interest payment that you often see advertised.  It’s not enough to look at P&I (Principal & Interest), you have to consider the PITI (Principal, Interest, Taxes and Insurance). And sometimes even the “A” (Homeowners Association Assessments).  If you don’t consider the full housing payment, including property taxes and homeowners insurance (and maybe even private mortgage insurance) you might do yourself a disservice when it comes to determining how much you can afford during the home financing process. You can check out my mortgage affordability calculator to see where you stand. Whether you have an escrow account or not, mortgage lenders will qualify you by factoring in taxes and insurance, not just your monthly mortgage payment.

When is the first mortgage payment due?


This depends on when you close your home loan and if you pay prepaid interest at  closing.  For example, if you close late in the month, chances are your first mortgage payment will be due in just over 30 days.  Conversely, if you close early in the month, you might not make your first payment for nearly 60 days. That can be nice if you’ve got moving expenses and renovation costs to worry about, or if your checking account is a little light.

What credit score do I need to get approved?


It depends what type of mortgage you’re attempting to get, and also what down payment you have, or if it’s a purchase or a refinance.  The good news is that there are a lot of mortgage programs available for those with low credit scores, including VA loans and FHA mortgages.  For example, the FHA goes as low as 500 FICO, Fannie and Freddie 620, and the USDA and VA don’t technically have a minimum credit score, though most lenders want at least 620/640. If you’re in good shape financially, a poor credit score may not actually be a roadblock. But you can save a lot of money if you have excellent credit via the lower interest rate you receive for being a better borrower. Simply put, loan rates are lower if you’ve got a higher credit score.

How large of a mortgage can I afford?


Here you’ll need to consider home values, how much you make, what your other monthly liabilities are, what you’ve got in your savings account, and what your down payment will be in order to come up with your loan amount. From there, you can calculate your debt-to-income ratio, which is very important in terms of qualifying for a mortgage.  This is a fairly involved process, so it’s tough to just estimate what you can afford or provide some quick calculation. There’s also your comfort level to consider. How much home are you comfortable financing? And don’t forget the property taxes and insurance, as well as routine maintenance costs, which can make your total housing obligations much more expensive!

Do I even qualify for a mortgage?


This is an important question to consider. Are you actually eligible for a mortgage or are you simply wasting your time and the lender’s?  While requirements do vary, most lenders require two years of credit history or clean rental history, and steady employment, along with some assets in the bank. As mentioned, if you are looking to purchase a new home, getting that pre-qualification, or better yet, pre-approval, is a good way to find out if the real thing (a loan application) is worth your while. However, even if you are pre-qualified or pre-approved, things can and do come up that turn a conditional approval into a denial letter, such as an undisclosed credit card, personal loan, auto loan, or pesky student loans. Many lenders will also verify employment and credit and income, prior to loan closing to make sure nothing has changed.  Simply, your loan is not 100% done until it funds.

Why might I be denied a mortgage?


There are probably endless reasons why you could be denied a mortgage, and likely new ones being realized every day. It’s a complicated business, really. With so much money at stake and so much risk to lenders if they don’t do their due diligence, you can bet you’ll be vetted pretty thoroughly.  If anything doesn’t look right, with you or the property, it’s not out of the realm of possibilities to be flat out denied. Those aforementioned undisclosed student loans or credit cards can also come back to bite you, either by limiting how much you can borrow or by pushing your credit scores down below acceptable levels. That doesn’t mean give up, it just means you might have to go back to the drawing board and improve your credit score, reduce some debts, or find a new lender willing to work with you. It also highlights the importance of preparation!

What documents do I need to provide to get a home loan?


In short, a lot of them, from tax returns to pay stubs to bank statements and other financials like a brokerage account if using assets from such a source. This process is becoming less paperwork intensive thanks to new technologies like single source validation, but it’s still quite cumbersome. You’ll also have to sign lots of loan disclosures, credit authorization forms, letters of explanation, and so on.  While it can be frustrating and time consuming, do your best to get any documentation requests back to the lender ASAP to ensure that you will close your home loan on time. And make sure you always send all pages of documents to avoid re-requests.


What type of mortgage should I get?


There are a lot of loan options, including fixed-rate mortgages and adjustable-rate mortgages, along with conventional loans and government loans, such as FHA and VA. While most borrowers just default to the 30-year fixed-rate mortgage loan, there are plenty of other loan programs available, and some may result in significant savings depending on your plans. For example, a 5/1 ARM might come with an interest rate 0.75% below a 30-year fixed, and it’s still fixed for the first five years, adjusting every year thereafter. You might want to start with the fixed-rate versus ARM comparison, then go from there. If you’re comfortable with an ARM, you can explore the many options available. If you know a fixed rate is the only way to go with a home loan, you can determine whether a shorter-term option like the 15-year fixed is in your budget and best interest. Also consider the FHA vs. conventional pros and cons to ensure you’ve covered all your bases if trying to decide between those two loan types.


How big of a down payment do I need?


That depends on a lot of factors, including the purchase price of the home, the type of loan you choose, the property type, the occupancy type, your credit score, and so on. There are still zero down mortgage options available in certain situations, including for USDA and VA loans, and widely available 3% and 3.5% down options as well.  In short, you can still get a mortgage with a relatively small down payment, assuming it’s owner-occupied and not a vacation home or investment property. Just make sure you can afford the higher monthly payments!

Do I need to pay mortgage insurance?


Good question. The answer coincides with down payment and/or existing home equity, along with loan type. Basically, you want to be at or below 80% loan-to-value to avoid mortgage insurance entirely, at least when it comes to a home loan backed by Fannie Mae or Freddie Mac. That means a 20% down payment or greater when purchasing a home, or 20%+ equity when refinancing a mortgage. However, for a FHA loan, mortgage insurance is unavoidable, regardless of the loan to value.


What are mortgage points? Do I need to pay them?


The choice is yours when it comes to points, though it does depend on how the lender. Are they discount points or a loan origination fee?  Points paid by you, that are for a lender origination fee do not reduce the interest rate. They are a fee to compensate the lender for their cost to originate the mortgage loan. Discount points will reduce the loan interest rate. For every point paid, there is a corresponding reduction in interest rate charged.  Of course, these points can be paid directly and out-of-pocket, or indirectly via a higher mortgage rate and/or rolled into the loan. This is part of the negotiation process, and also your preference.

What closing costs are negotiable?


Closing costs will be fees assessed by and paid to your lender and fees assessed by your lender but paid to a third-party. Many closing costs may be negotiable, including some third-party fees that you can shop for like title insurance. Closing costs refer to fees both paid to the lender as well as fees assessed and paid to a third-party provider.  If you look at your Loan Estimate (LE), and provided settlement Service Provider list, you’ll actually see which services identified which you can shop for. Then there are the loan costs, which you may be able to negotiate with some lenders. In some instances, you may not be charged an outright fee, because it will be built into the rate, which also may be negotiated at times. You have every right to go through each and every fee and ask what it is and why it’s being charged. And the lender should have a reasonable response.


How quickly can I get a mortgage?


This is an easier mortgage question to answer, though it can still vary quite a bit. In general, you might be looking at anywhere from 30 to 45 days for a typical residential mortgage transaction, whether it’s a mortgage refinance or home purchase. Of course, stuff happens, a lot, so it’s not out of the ordinary for the process to take up to 60 days or even longer. At the same time, there are companies (and related technologies) that are trying to whittle the process down to a couple weeks, if not less. So, look forward to that in the future!


Do I really need a 20% down payment to purchase a home?


A. No. There are several other loan options available that allow you to put as little as 5%, 3%, or even 0% down. Just keep in mind that a conventional home loan with less than a 20% down payment typically requires Private Mortgage Insurance (PMI). FHA loans will require mortgage insurance premiums regardless of the down payment. Mortgage Insurance protects the lender from losing money if you end up not being able to pay the loan.

When should I lock in my interest rate?


A. This answer differs depending on whether you’re purchasing or refinancing a home. But of course, either way, you want to obtain the lowest rate possible on such a large amount of money.  If you’re refinancing, your application has to be credit-approved before you can lock in your rate. If you’re shopping for a home, your application has to be credit-approved and the seller has accepted your offer before you can lock in your rate.  Then, you’ll need to decide if you want to lock in today’s rate or keep an eye on rates in the days that follow.  Be sure to understand any fees associated with the rates you see advertised — not all are created equal, so you want to pay attention to the Annual Percentage Rate (APR), not just the interest rate.


How long does my pre-approval last?


A. Pre-approvals on average are good from 60 to 90 days, at which time, if you haven’t put an offer on a home and submitted a loan application, you’ll need to get pre-approved again.

When I purchase a new home, what exactly, are closing costs, and how much should I expect to pay?


A. When you decide to buy a home, you’ll spend more than just your down payment. You’ll also pay for things like recording fees, wire fees, or escrow account, origination fees, upfront insurance premiums and any “points” you buy to lower your interest rate. These expenses are collectively called closing costs, and you can expect them to run you anywhere from 2% to 5% of the purchase price of your home.

What type of mortgage should I choose?


A. This is entirely unique to your financial situation, what you want to buy, how long you plan to live in the home, and more. With options that range from a standard 30-year fixed-rate home loan to an adjustable-rate mortgage that lets you pay less in interest for the first few years, your best bet at finding the right loan is to speak with an expert. Our mortgage loan advisors can spend time understanding your needs and goals to assist you in determining the best loan program for you




Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.

Text/call:      502-905-3708
fax:            502-327-9119
email:
          kentuckyloan@gmail.com

 




Here are action steps you can take right now to buy a home in Kentucky in 2022

 Here are action steps you can take right now to buy a home in Kentucky in 2022


1. Focus on your credit score

FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 620 is considered to have poor credit.

To qualify for a mortgage and get a low mortgage rate, your credit score matters.

Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower. If you find an error, you should report it to the credit bureau immediately so that it can be corrected.


2. Manage your debt-to-income ratio

Many lenders evaluate your debt-to-income ratio when making credit decisions, which could impact the interest rate you receive.

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. Lenders focus on this ratio to determine whether you have enough excess cash to cover your living expenses plus your debt obligations.

Since a debt-to-income ratio has two components (debt and income), the best way to lower your debt-to-income ratio is to:

  • repay existing debt;
  • earn more income; or
  • do both

3. Pay attention to your payments

Simply put, lenders want to lend to financially responsible borrowers.

Your payment history is one of the largest components of your credit score. To ensure on-time payments, set up autopay for all your accounts so the funds are directly debited each month.

FICO scores are weighted more heavily by recent payments so your future matters more than your past.

In particular, make sure to:

  • Pay off the balance if you have a delinquent payment
  • Don't skip any payments
  • Make all payments on time

4. Get pre-approved for a mortgage before you start shopping for a home loan.

Too many people find their home and then get a mortgage.

Switch it.

Get pre-approved with a lender first. Then, you'll know how much home you can afford.

To get pre-approved, lenders will look at your income, assets, credit profile and employment, among other documents.

5. Keep credit utilization low on your credit cards

Lenders also evaluate your credit card utilization, or your monthly credit card spending as a percentage of your credit limit.

Ideally, your credit utilization should be less than 30%. If you can keep it less than 10%, even better.

For example, if you have a $10,000 credit limit on your credit card and spent $3,000 this month, your credit utilization is 30%.

Here are some ways to manage your credit card utilization:

  • set up automatic balance alerts to monitor credit utilization
  • ask your lender to raise your credit limit (this may involve a hard credit pull so check with your lender first)
  • pay off your balance multiple times a month to reduce your credit utilization

6. Look for down payment assistance in Kentucky

There are various types of down payment assistance, even if you have student loans.

Here are a few:

  • FHA loans - federal loan through the Federal Housing Authority
  • USDA loans - zero down mortgages for rural and suburban homeowners
  • VA loans - if military service
  • Kentucky Housing Down Payment Assistance of $6000



There are federal, state and local assistance programs as well so be on the look out.



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

email:          kentuckyloan@gmail.com
 

https://kentuckyloan.blogspot.com/

 









--

Joel Lobb
Mortgage Loan Officer
Individual NMLS ID #57916

American Mortgage Solutions, Inc.

Text/call:      502-905-3708
fax:            502-327-9119
email:
          kentuckyloan@gmail.com

 

Credit Karma DOES NOT give you FICO scores! Which is what mortgage lenders use.

Great information to share with your clients that uses Credit Karma. A lot of people do not know that the Credit Karma app is a Vantage Score.

Credit Karma is NOT Free!
Credit Karma makes money off of the personal information you volunteered!
Credit Karma is NOT a credit monitoring site! - They collect your information from the credit agencies to create targeted campaigns based on your personal information which makes Credit Karma an affiliate marketing site!
Credit Karma DOES NOT give you FICO scores! Which is what mortgage lenders use.
Credit Karma provides you with Vantage scores (Not heavily used by lenders)
Credit Karma buys your information for pennies on the dollar, this is how they are able to provide you with updates every 7 days.
Why?... To get you to look at your scores and their AFFILIATE offers! You know, the offers for those credit cards that say you have a fair, good or very good chance of being approved for....
Have you noticed they never say, "You have a bad or poor chance”?
Apply, get denied and now you have an inquiry on your credit profile.
For those of you that are seeing you have a "chance" of getting approved for an American Express πŸ’³ think again... You would be surprised to know, American Express only pulls from Experian for credit cards?
Credit Karma DOES NOT give you Experian credit report or scores

While it’s common knowledge that mortgage lenders use FICO scores, most people with a credit history have three FICO scores, one from each of the three national credit bureaus (Experian, Equifax, and TransUnion). 


Credit Karma DOES NOT give you FICO scores! Which is what mortgage lenders use. Which FICO Score is Used for Mortgages?



  • Which FICO Score is Used for Mortgages?

Most lenders determine a borrower’s creditworthiness based on FICO® scores, a Credit Score developed by Fair Isaac Corporation (FICO™). This score tells the lender what type of credit risk you are and what your interest rate should be to reflect that risk. FICO scores have different names at each of the three major United States credit reporting companies. And there are different versions of the FICO formula. Here are the specific versions of the FICO formula used by mortgage lenders:

  • Equifax Beacon 5.0
  • Experian/Fair Isaac Risk Model v2
  • TransUnion FICO Risk Score 04

Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.

Which Score Gets Used?

Since most people have three FICO scores, one from each credit bureau, how do lenders choose which one to use?

For a FICO score to be considered “usable”, it must be based on adequate, concrete information. If there is too little information, or if the information is inaccurate, the FICO score may be deemed unusable for the mortgage underwriting process. Once the underwriter has determined if a score is usable or not, here’s how they decide which score(s) to use for an individual borrower:

  • If all three scores are different, they use the middle score
  • If two of the scores are the same, they use that score, regardless of whether the two repeated scores are higher or lower than the third score

Lenders have identified a strong correlation between Mortgage performance and FICO Bureau scores (FICO score). FICO scores range from 300 to 850. The lower the FICO score, the greater the risk of default.

If it helps to visualize this information:

Identifying the Underwriting Score
ExampleScore 1Score 2Score 3Underwriting Score
Borrower 1680700720700
     

Joel Lobb

Mortgage Loan Officer

Individual NMLS ID #57916

 

American Mortgage Solutions, Inc.

10602 Timberwood Circle 

Louisville, KY 40223

Company NMLS ID #1364

click here for directions to our office

 

Text/call:      502-905-3708

fax:            502-327-9119
email:
          kentuckyloan@gmail.com

 

https://www.mylouisvillekentuckymortgage.com/

 

 
 

 

 
 
Joel Lobb
Senior  Loan Officer
(NMLS#57916)
 
 Company ID #1364 | MB73346
 

text or call my phone: (502) 905-3708
email me at kentuckyloan@gmail.com

The view and opinions stated on this website belong solely to the authors, and are intended for informational purposes only. The posted information does not guarantee approval, nor does it comprise full underwriting guidelines. This does not represent being part of a government agency. The views expressed on this post are mine and do not necessarily reflect the view of my employer. Not all products or services mentioned on this site may fit all people. NMLS ID# 57916, (www.nmlsconsumeraccess.org). USDA Mortgage loans only offered in Kentucky.

All loans and lines are subject to credit approval, verification, and collateral evaluation

Effective on 9/18/21, Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying

 

Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying

Do you and your partner have very different credit scores? Great news! You may have access to more loan program options than you thought!

Here's the deal... All lenders pull FICO scores from each of the three credit bureaus to qualify a borrower. In situations with co-applicants, we will use the lower of the two middle scores for qualifying purposes. Historically, to do a Conventional Loan, both mid-scores would have to be above 620.
Effective on 9/18/21, Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying. This critical change may help many borrowers qualify and have increased advantages when putting an offer in on a home.
Long story short - we can help you now more than ever. Curious if this will help you? Reach out to me today, and we can investigate.
PS: These changes are effective September 18th, 2021 and there are still a lot of other variables to consider and guidelines are always subject to change. Let's start a conversation today! Message me for more details or to get started.

Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying
Effective on 9/18/21, Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying    Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying Do you and your partner have very different credit scores? Great news!  You may have access to more loan program options than you thought!    Here's the deal... All lenders pull FICO scores from each of the three credit bureaus to qualify a borrower.  In situations with co-applicants, we will use the lower of the two middle scores for qualifying purposes. Historically, to do a Conventional Loan, both mid-scores would have to be above 620. Effective on 9/18/21, Fannie Mae announced that their Automated Underwriting System will now take an AVERAGE of the two scores for qualifying.  This critical change may help many borrowers qualify and have increased advantages when putting an offer in on a home. Long story short - we can help you now more than ever.  Curious if this will help you?  Reach out to me today, and we can investigate. PS: These changes are effective September 18th, 2021 and there are still a lot of other variables to consider and guidelines are always subject to change.  Let's start a conversation today!  Message me for more details or to get started.



Mortgage Application Checklist of Documents Needed below  πŸ‘‡

W-2 forms (previous 2 years)
Paycheck stubs (last 30 days - most current)
Employer name and address (2 year history including any gaps)
Bank accounts statement (recent 2 months – all pages
Statements for 401(k)s, stocks and other investments (most recent)
federal tax returns (previous 2 years)
Residency history (2 year history)
Photo identification for applicant and co-applicant (valid Driver’s License





click on link for mortgage pre-approval


Joel Lobb (NMLS#57916)


Senior Loan Officer

American Mortgage Solutions, Inc.
10602 Timberwood Circle Suite 3
Louisville, KY 40223


Company ID #1364 | MB73346

Text/call 502-905-3708


kentuckyloan@gmail.com



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#57916http://www.nmlsconsumeraccess.org/


NMLS Consumer Access for Joel Lobb 

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Joel Lobb 

Joel Lobb, American Mortgage Solutions (Statewide)

Joel has worked with KHC for 12 of his 20 years in the mortgage lending business. Joel said, “A lot of my clients would not have been able to purchase a home of their own or possibly delayed their purchase due to lack of down payment but with the $6,000 DAP loan program, this gets them into a house sooner and starts their path to homeownership while building equity instead of throwing their money away.”

When you’re ready to purchase a home in Joel's area, contact him at:
Phone: 502-905-3708
Email: Kentuckyloan@gmail.com
Website: www.mylouisvillekentuckymortgage.com







What credit score do mortgage lenders use?

The best-known credit scores are going to fall under either the FICO or VantageScore brands. There are multiple generations of each score brand, as every few years, the score developers create newer versions. So, for example, there’s a VantageScore 1.0, 2.0, 3.0, and 4.0.

In most lending environments outside of mortgages, it’s hard to know which specific credit score a lender will use to evaluate your application. And, even if you knew your lender used a FICO Score or a VantageScore credit score, you still would not know which generation of the score it is using.

For example, you may apply for an auto loan with one lender that checks your FICO Auto Score 8 based on your Experian credit report. Yet, if you apply for financing with a different auto lender, it may opt to check your VantageScore 3.0 score based on TransUnion data.

The only way to know for sure is to ask the lender which credit report and which credit score version it plans to check, but that isn’t a guarantee that they’ll tell you.

The mortgage industry is different. Because of the aforementioned FHFA mandate, mortgage lenders must use the following versions of FICO’s scoring models:


FICO Model

Description
FICO 9Newest version. Not widely used.
FICO 8Most common. Used for Auto and Bankcard lending.
FICO 5Used by mortgage lenders. Built on data from Equifax.
FICO 4Used by mortgage lenders. Built on data from TransUnion.
FICO 2Used by mortgage lenders. Built on data from Experian.


  • Experian: FICO Score 2, sometimes referred to as FICO V2 or FICO-II
  • TransUnion: FICO Score 4, sometimes referred to as FICO Classic 04
  • Equifax: FICO Score 5, sometimes referred to as BEACON 5.0


Why Do Mortgage Lenders Use Older FICO Scores?

The reason mortgage lenders use older FICO Scores is because they don’t have a choice. They are essentially forced to use them.

Unlike every other industry, mortgage lenders don’t have the flexibility to choose the scoring model brand or generation they want to use. Mortgage lenders must follow the direction of the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, as it pertains to scoring models.

Fannie Mae and Freddie Mac

The GSEs play an important role in mortgage lending. These publicly traded companies buy mortgages from banks, bundle them together, and sell them to investors. This frees up funds so that banks can offer new mortgages to additional homebuyers.

For a bank to sell a mortgage to Fannie Mae or Freddie Mac, the loan has to meet certain guidelines. Some of these guidelines require borrowers to have a minimum credit score under specific FICO Score generations.

If a lender uses a different scoring model other than what the GSEs approve when it underwrites a mortgage, it probably won’t be able to sell that mortgage after it issues the loan. This limits the lender’s ability to write new loans because it will have less money available to lend to future borrowers


Link to article below

https://www.badcredit.org/how-to/which-fico-score-do-mortgage-lenders-use/

About FICO® Scores

 


About FICO® Scores

CollapseWhat is a credit score?

A credit score is a number that summarizes your credit risk to lenders, or the likelihood that you’ll pay the lender back the amount you borrowed plus interest. The score is based on a snapshot of your credit report(s) at one of the three major credit bureaus—Equifax®, Experian®, and TransUnion®—at a particular point in time, and helps lenders evaluate your credit risk. Your credit score can influence the credit that’s available to you and the terms, such as interest rate, that lenders offer you.

CollapseWhat is a credit bureau?

A credit bureau, also known as a consumer reporting agency, collects and stores individual credit information and provides it to creditors so they can make decisions on granting loans and other credit activities. Typical clients include banks, mortgage lenders, and credit card issuers. The three largest credit bureaus in the U.S. are Equifax®, Experian®, and TransUnion®.

CollapseWhat are FICO® Scores?

FICO® Scores are the most widely used credit scores and are used in over 90% of U.S. lending decisions. Your FICO® Scores (you have more than one) are based on the data generated from your credit reports at the three major credit bureaus, Experian®, TransUnion® and Equifax®. Each of your FICO® Scores is a three-digit number summarizing your credit risk, that predicts how likely you are to pay back your credit obligations as agreed.

CollapseWhat it the highest credit score?

Most credit scoring models follow a credit score range of 300 to 850 with that 850 being the highest score you can have. However, there can be other ranges for different models, some of which are customized for a particular industry (credit card, auto lending, or insurance for example). While the majority follow the 300 to 850 range, there are some scores (e.g., FICO® Bankcard Score) that range from 250 to 900 and others that may use other score ranges. For more information on the different scoring models, view Understanding the difference between credit scores.

CollapseWhy do FICO® Scores fluctuate?

There are many reasons why your score may change. The information on your credit report changes each time lenders report new activity to the credit bureau. So, as the information in your credit report at that bureau changes, your FICO® Scores may also change. Keep in mind that certain events such as late payments or bankruptcy can lower your FICO® Scores quickly.

FICO® Scores consider five main categories of information in your credit report.

  • Your payment history
  • The amount of money you currently owe
  • The length of your credit history
  • New credit accounts
  • Types of credit in use

CollapseWhat are the minimum requirements to produce a FICO® Score?

In order for a FICO® Score to be calculated, a credit report must contain these minimum requirements:

  • At least one account that has been open for six months or more.
  • At least one account that has been reported to the credit reporting agency within the past six months.
  • No indication of deceased on the credit report (Please note: if you share an account with another person and the other account holder is reported deceased, it is important to check your credit report to make sure you are not impacted).

CollapseDoes a FICO® Score alone determine whether I get credit?

No. Most lenders use a number of factors to make credit decisions, including a FICO® Score. Lenders may look at information such as the amount of debt you are able to handle reasonably given your income, your employment history, and your credit history. Based on their review of this information, as well as their specific underwriting policies, lenders may extend credit to you even with a low FICO® Score, or decline your request for credit even with a high FICO® Score.

CollapseHow long will negative information remain on my credit reports?

It depends on the type of negative information. Here’s the basic breakdown of how long different types of negative information will remain on your credit reports:

  • Late payments: 7 years from the original delinquency date.
  • Chapter 7 bankruptcies: 10 years from the filing date.
  • Chapter 13 bankruptcies: 7 years from the filing date.
  • Collection accounts: 7 years from the original delinquency date of the account
  • Public Record: Generally 7 years

Keep in Mind: For all of these negative items, the older they are the less impact they will have on your FICO® Scores. For example, a collection that is 5 years old will hurt much less than a collection that is 5 months old.

CollapseAre FICO® Scores unfair to minorities?

No. FICO® Scores do not consider your gender, race, nationality or marital status. In fact, the Equal Credit Opportunity Act prohibits lenders from considering this type of information when issuing credit. Independent research has shown that FICO® Scores are not unfair to minorities or people with little credit history. FICO® Scores have proven to be an accurate and consistent measure of repayment for all people who have some credit history. In other words, at a given FICO® Score, non-minority and minority applicants are equally likely to pay as agreed.

CollapseHow are FICO® Scores calculated for married couples?

Married couples don’t share joint FICO® Scores; each person has their own individual credit report, which is used to calculate FICO® Scores, and isn’t impacted by their spouse’s credit history. However, married couples should be mindful of the potential impact of opening joint credit accounts. For example, if you get a new credit card in both spouses’ names, and there is a late payment on that account, the late payment will impact both individuals’ FICO® Scores.

CollapseHow can I access my credit report?

By federal law, you are entitled to one free credit report every 12 months from each credit reporting company, TransUnion®, Equifax®, and Experian®. Find them at annualcreditreport.com. Take advantage of this service annually to ensure the information on your credit report is current and accurate.



Impacts to FICO® Scores

CollapseWill closing a credit card account impact my FICO® Score?

It is possible that closing a credit account may have a negative impact depending on a few factors. FICO® Scores may consider your “credit utilization rate”, which looks at your total used credit in relation to your total available credit. Essentially, it measures how much of your available credit you are actually using. The more of your credit that you use, the higher your utilization rate and high credit utilization rates may negatively impact your FICO® Score. Before you close any credit card account, Wells Fargo recommends that you should first consider whether you really need to close the account or if your real intention is just to stop using that credit card. If you really just want to stop using that card, it may make sense if you stop using the card and put it somewhere for safe keeping in case of an emergency. It’s also important to note that length of your credit history accounts for 15% of your FICO® Score calculation. Therefore, having credit card accounts that are open and in good standing for a long time may affect your FICO® Score.

CollapseHow does refinancing impact my FICO® Score?

Refinancing and loan modifications may affect your FICO® Scores in a few areas. How much these affect the score depends on whether it’s reported to the consumer reporting agencies as the same loan with changes or as an entirely new loan. There are many reasons why a score may change. FICO® Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). If a refinanced loan or modified loan is reported as the same loan with changes, two pieces of information associated with the loan modification may affect your score: the new credit inquiry and changes to the amounts owed. If a refinanced loan or modified loan is reported as a “new” loan, your score could still be affected by the new credit inquiry and an increase in amounts owed,— along with the additional impact of a new “open date” which may affect the credit history category. In the end, a new or recent open date typically indicates that it is a new credit obligation and, as a result, may impact the score more than if the terms of the existing loan are simply changed.

CollapseHow do FICO® Scores consider loan shopping?

In general, if you are “loan shopping” - meaning that you are applying for the same type of loan with similar amounts with multiple lenders in a short period of time - your FICO® Score will consider your “shopping” as a single credit inquiry on your score if the shopping occurs within a short time period (30 to 45 day) depending on which FICO® Score version is used by your lenders.

CollapseWhat are the different categories of late payments and do they impact FICO® Scores?

A history of payments is the largest factor in FICO® Scores. FICO® Scores consider late payments in these general areas; how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. So this means that a recent late payment could be more damaging to a FICO® Score than a number of late payments that happened a long time ago. Late payments are listed on credit reports by how late the payments are. Typically, creditors report late payments in one of these categories: 30-days late, 60-days late, 90-days late, 120-days late, 150-days late, or charge off (written off as a loss because of severe delinquency). Of course a 90-day late is worse than a 30-day late, but the important thing to understand is that people who continually pay their bills on time tend to appear less risky to lenders. However, for people who continue not to pay debt, and their creditor either charges it off or sends it to a collection agency, it is considered a significant event with regard to a score and will likely have a severe negative impact.

CollapseHow does a bankruptcy impact my FICO® Score?

A bankruptcy is considered a very negative event by FICO® Scores. As long as the bankruptcy is listed on your credit report, it will be factored into your scores. How much of an impact it will have on your score will depend on your entire credit profile. As the bankruptcy item ages, its impact on a FICO® Score gradually decreases. Typically, here is how long you can expect bankruptcies to remain on your credit reports (from the date filed):

  • Chapter 11 and 7 bankruptcies up to 10 years.
  • Completed Chapter 13 bankruptcies up to 7 years.

These dates and time periods refer to the public record item associated with filing for bankruptcy. All of the individual accounts included in the bankruptcy should be removed from your credit reports after 7 years.

CollapseHow do public records and judgments impact FICO® Scores?

Public records are legal documents created and maintained by Federal and local governments, which are usually accessible to the public. Some public records, such as divorces, are not considered by FICO® Scores, but adverse public records, which include bankruptcies, are considered by FICO® Scores. FICO® Scores may be affected by the mere presence of an adverse public record, whether paid or not. Adverse public records will have less effect on a FICO® Score as time passes, but they can remain in your credit reports for up to ten years based on what type of public record it is.

CollapseWhat are inquiries and how do they impact FICO® Scores?

Inquiries may or may not affect FICO® Scores. Credit inquiries are classified as either “hard inquiries” or “soft inquiries”—only hard inquiries have an effect on FICO® Scores.

Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. FICO® Scores do not take into account any involuntary (soft) inquiries made by businesses with which you did not apply for credit, inquiries from employers, or your own requests to see your credit report. Soft inquiries also include inquiries from businesses checking your credit to offer you goods or services (such as promotional offers by credit card companies) and credit checks from businesses with which you already have a credit account. If you are receiving FICO® Scores for free from a business with which you already have a credit account, there is no additional inquiry made on your credit report. FICO® Scores take into account only voluntary (hard) inquiries that result from your application for credit. Hard inquiries include credit checks when you’ve applied for an auto loan, mortgage, credit card or other types of loans. Each of these types of credit checks count as a single inquiry. Inquiries may have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk.

CollapseHow does applying for new credit impact my FICO® Score?

Applying for new credit only accounts for about 10% of a FICO® Score. Exactly how much applying for new credit affects your score depends on your overall credit profile and what else is already in your credit reports. For example, applying for new credit may have a greater impact on your FICO® Scores if you only have a few accounts or a short credit history. That said, there are definitely a few things to be aware of depending on the type of credit you are applying for. When you apply for credit, a credit check or “inquiry” can be requested to check your credit standing.