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More Home Loan Options Now Available For Borrowers With Bad Credit

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More Home Loan Options Now Available For Borrowers With Bad CreditFor a long time after the real estate housing crisis in 2008, buyers with a poor credit history had a difficult time finding mortgage financing. It was a problem that trapped those seeking to buy a home because so many lost their homes from the inability to pay their mortgages.

Some suffered damage to their credit history that was severe. Millions filed for bankruptcy.

Not only did mortgage lending requirements get stricter for home buyers, but the funds available for home loans were also severely reduced. Even those with a good credit history found it more difficult to qualify for mortgage financing.

Time For A Second Chance

Now, there is a much better environment for homebuyers with a bad credit history who are seeking a loan. Those with a bankruptcy on their record, which was settled at least ten years ago, will see the bankruptcy taken off their credit history. Suddenly, their credit score may increase dramatically.

Unconventional Financing

Conventional financing is available for those with decent credit. This includes attractive terms and conditions for FHA loans and other federally-based loan programs. Those with bad credit may not qualify for these loans. If they want to buy a home, their only option is to use unconventional financing, also called non-qualified mortgages (non-QM).

Unconventional financing has higher costs and no federal insurance. In 2008, these non-QM loans were a total of $65 billion per year. In 2009, this figure dropped to $10 billion and, in 2010, the low of $8 billion.

Since 2010, the availability of these non-QM loans steadily increased. By 2018, the total amount of these loans was up to $45 billion. That figure will be higher in 2019.

Is There Another Real Estate Bubble Happening?

Are we back to where we were before when the real estate market collapsed in 2008? As far as the total amount of non-QM loans, we are close. However, the qualifying standards for these loans are stricter than a decade ago.

There is less predatory lending where borrowers who do not truly qualify get a no-doc loan without proving income. Before those predatory loans often had a teaser introductory rate that quickly escalated to an amount that made it impossible for the home buyer to continue to make their mortgage payments. There are fewer of these loans now.

Summary

Besides the big picture real-estate-bubble worries, the positive news is that borrowers with a poor credit history can now participate in the housing market again.

Be prudent when considering a mortgage and carefully think about the ability to make the monthly payments. Read all the details of the loan requirements carefully. Use competent professional advice from a trusted home mortgage professional to make sure there is a very clear understanding of the loan terms and conditions.

8 Ways To Maintain A Great Credit Score

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8 Ways To Maintain A Great Credit ScoreHaving an excellent credit score is very useful. The following are some tips on how to maintain a superb credit score.

Open Credit Accounts When You Do Not Need Them

If you don’t have any credit accounts, you will have a low score. The best time to open them is when you do not need them. Keep a small balance on them and pay it all off at the end of each month to avoid paying interest.

Charge Up To Half The Credit Limit Then Pay It All Back Within A Few Months

If you must use a credit line, only use half of it and pay it back quickly.

Buy Big Ticket Items With A Credit Card For Cash Back And Points

Even if you can pay cash for a big ticket item, you may find it beneficial to buy it with a card that gives a reward for making a purchase like cash back or rewards points. Then pay off the balance as quickly as you can.

Ask For An Increased Credit Line

For credit accounts that you have been paying on time, call the customer service department and tell them you are thinking about buying something that is slightly above your credit limit. Ask them if they can extend the limit. This usually works even if you do not actually buy something.

You can attempt to raise your credit limit this way about once per year. As you increase your available credit capacity while maintaining all accounts in a “paid as agreed” status, your credit score should go up.

Move Credit Balances To A New Card With Zero Interest

Many credit card companies offer a zero-interest period for transfers of credit card balances from another card. After doing this, transfer this balance, once again, to another card that has a similar offer before the zero-interest period expires.

Close Old Accounts When New Ones Are Open

Having too many credit card accounts can lower your score. Keep about half a dozen cards. Close the ones that you transferred the balance from to zero interest cards.

Use Automatic Payments To Make Sure Bills Are Paid On Time

Never miss a payment or pay late. You may want to use automatic bill payment systems to make sure you never let a bill slip by.

Monitor Credit Card Activity For Unauthorized Use

Monitor all credit card activity in real time. Immediately take action if you notice an unauthorized charge. Monitor your credit history file on the three credit bureau services of Equifax, Experian, and Transunion.

Your trusted home mortgage professional can provide you with additional guidelines to improve and maintain your credit while preparing to purchase or refinance your home. Be sure to contact this valuable resource if you have any questions.

Mortgage Challenges For Self-Employed Home Buyers

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Mortgage Challenges For Self-Employed Home BuyersIt’s no secret that mortgage lending institutions look favorably on steady paychecks and positive debt-to-income ratios. That can leave many self-employed prospective home buyers feeling anxious about getting approved for a mortgage. But just like the 9-to-5ers who get regular paychecks, self-employed people earning a good living can get approved with a little due diligence.

The primary concern of mortgage lenders is not necessarily where your revenue comes from, it’s confidence that you can meet the monthly obligations. A lender probably wouldn’t see a significant difference between someone who was paid every two weeks and another paid monthly. Why should a self-employed earner be any different? While there are differences, that doesn’t necessarily have to be a bad thing.

Self-Employed Mortgage Applicants Face ‘Different’ Scrutiny

When reviewing a self-employed person’s mortgage application, the lender can expand their consideration to items related to your business. Factors such as stability, longevity, location, and viability are issues that can come into play.

This type of review mirrors that of steady paycheck earners in terms of length of employment, history of layoffs and other potential revenue setbacks. There really isn’t a higher standard for self-employed mortgage applicants. You enjoy a different professional life, and the process reflects those differences. That being said, there are a number of things you can do to put your best foot forward toward mortgage approval.

Strengthen Your Self-Employed Mortgage Application

First and foremost, every mortgage applicant must be able to demonstrate an ability to meet the monthly payments on paper. There is no way around the debt-to-income ratio. And although many self-employed people exercise some lifestyle flexibility in terms of tax deductions, your numbers have to prove you can take on a mortgage. That being said, there are important items you may want to consider when applying for a home loan.

  • Revenue Stability: Volatile swings in revenue are not generally persuasive. Lenders tend to like steady and positive growth reflected in your business and personal earnings.
  • Tax Returns Matter: This can be particularly problematic for people who find creatively legal ways to make revenue tax exempt. Home offices and company cars can lower your taxable income, but they also reduce your ability to pay the mortgage, at least on paper. Plan ahead by strategically filing strong earned-revenue tax returns.
  • Consistency Matters: There are a few ways to demonstrate consistency. It can be level monthly earnings or multiple years of tax returns in the same business. Your income may only be considered if it fluctuates in a way that frightens lenders.
  • Good Credit: Some cash-oriented people tend to discount the value of credit scores. The adage that “cash is king” may apply to the down payment, but a poor credit history can hurt your chances with lenders. Think “credit is king” when applying for a home loan.

Being self-employed does not mean you are at a strategic disadvantage when applying for a mortgage. But keep in mind that the home loan review can be slightly different. As always, your best next step would be to consult with your trusted home mortgage professional to go over your personal situation.

Understanding the Factors That Impact Your Credit Score

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Understanding the Factors That Impact Your Credit ScoreMost consumers believe if they pay their bills on time, they need not worry about their credit score. Oftentimes, it is a rude awakening when they apply for a mortgage loan, car loan, or any revolving credit to learn they are not going to get the lowest rates available due to their credit score. This is because paying bills on time only accounts for 35 percent of your credit score. The remaining 65 percent is spread out among other factors that impact your credit score.

Credit Usage and Impact on Score

Nearly one-third, 30 percent, of your credit score is based on how much of your available credit you are using. For example, if you have combined credit available of $100,000 and you use $90,000, you will suffer a decline in your credit score. Those consumers who have similar credit lines and are using $9,000 will get a slight bump in their score.

New Credit vs. Old Credit

We seldom think about how long we have held a line of credit open. However, some consumers “exchange” credit lines for other credit lines due to special offers made by credit card companies. This is not necessarily a good idea since 15 percent of your credit score is determined by the age of your credit accounts. The longer you have had an account, the better in most cases. The calculation will take all open credit accounts, take the amount of time they have been open and get an “average age”. If you have six accounts which have been open less than a year and six that have been open five years, the newer accounts will count against you in this case.

Mixing up Credit Lines

A consumer who has only a mortgage and a single credit score will take a modest hit on their credit score versus a consumer who has multiple credit cards, a mortgage, and an auto loan. The types of credit you have will account for 10 percent of your credit score and the more varied your open credit lines, the better. While it is inadvisable to open new credit lines simply to show a variety of types, having installment loans, retail credit cards, and traditional credit cards is a good idea.

New Lines of Credit Opened

One danger many consumers are unaware of is suddenly opening new lines of credit. For example, a new homeowner may open a new account with a home improvement store, a general retail store, and a new credit card to help them furnish and repair their new home. This could be a red flag since the credit lines are new, and there is no established history on the mortgage, or the new credit lines. Since this factor accounts for 10 percent of your credit score, you could suffer a temporary decline in your credit score.

Consumers should be aware of the factors which impact their credit score, and also be aware of the factors that do not impact their scores. Understanding your credit score may be the most important tool you have when buying a home, or refinancing your current mortgage.

Please contact your trusted mortgage professional to discuss how your credit score may be impacting your ability to finance your next home purchase. 

CREDIT RULE CHANGES

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On the 8th of June, there will be changes on how your credit is reported.

Changes include:

**Collections that aren’t at least 180 days old will be rejected by the 3 major credit bureaus. You will now have time to pay them off before it is even reported.
**Medical collections will no longer show on credit reports as long as it is being paid (through either you or insurance).
**Collection accounts that have not been updated in six months or more will not be factored into scores.
**Any collection that did not result from a contract or agreement to pay by the consumer, will be removed.

This means that now is the perfect time to speak with a loan professional about how this will impact your ability to buy a home.

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