Lenders everywhere are demanding record-high FICO credit scores, but for many of today’s borrowers it is a mystery about what makes the number go up or down. Fannie Mae and Freddie Mac are averaging around 760 on approved mortgages this year, so there is an increased importance of maintaining a high score.
Home buyers and mortgage applicants are affected by higher numbers of inquiries, as consumers looking for new credit accounts are considered riskier. FICO models place significance on this because bankruptcy is much more likely for people with more inquiries. However, for those looking for a home that are racking up the inquiries, the FICO models ignore all mortgage-related inquiries during the 30 days before computation of the score.
All mortgage inquiries during the 45 days preceding a loan application count only as a single inquiry. This safety net also applies to those shopping for auto and student loans. A single inquiry usually is not a big deal as a 5 point deduction is standard. But despite good intentions, there are hazards, especially for people with thin credit files, such as young, first-time home buyers and those without extensive credit histories. And unless loan officers properly code the purpose of the inquiry when they report it to the national credit bureaus — say the protected auto loan — credit files won't necessarily identify it that way.
On top of this, Fannie Mae and Freddie Mac have begun requiring lenders to pull a second set of credit reports immediately before closing to ensure that applicants' FICO scores haven't changed significantly. With this becoming more common, loan officers tell clients that it is advisable that they avoid all credit-related in the weeks before their closing. The good news for consumers is by buying them from Equifax, Experian or TransUnion or at www.annualcreditreport.com where reports are free once a year, the FICO score goes untouched.
There are a lot of companies, and people, involved in the home loan process. A borrower might work with a real estate agent, a loan broker, a lender, a title or escrow company, a loan servicer, investor, and so on – it can be somewhat confusing. But most borrowers know what those are – except for the “servicer.” What is a loan servicer, and is it needed?
When it comes to buying a home, the role of the mortgage servicer is an important one that bridges the gap between the borrower and the investor who owns the loan. The role of the mortgage servicer is to provide certain customer service tasks such as, collecting payments from the borrower on behalf of the investor, handling customer service after the loan closes, paying real estate taxes and insurance on escrowed loans, negotiate loan modifications on behalf of the investor, and work with the funds when a loan is paid off.
An issue that consumer groups have had with the mortgage servicing industry is that borrowers have not been able to pick their mortgage servicer (like they did with their lender). This, coupled with the servicer's insufficient resources, left them ill-equipped to handle the mortgage crises. This resulted in inefficiencies such as lack of employee continuity, "runaround" from their servicers, and inconsistency with paperwork. The Consumer Financial Protection Bureau ("CFPB") has now mandated that for any borrower who is two or more month's delinquent, policies need to be put into place by the servicer to provide these borrowers with easy, ongoing access to a servicer's employees.
The servicer's personnel will be responsible for making sure that the documents get sent to the proper person for handling of the issue. The person responsible for loss mitigation must have timely access to the borrower's records and provide the borrower with accurate information about the foreclosure process and loss mitigation options, procedures a borrower must follow to be eligible for loss mitigation, and the status of any loss mitigation application that the borrower has filed.
Dodd-Frank has demanded that mortgage servicers be more responsive and accountable to their customers. Effective January 10, 2014, a new set of servicing rules will go into effect providing borrowers with better tools and options for dealing with their mortgage servicers. If borrowers have questions before that time on these issues, they should contact their lender or servicer.
The Mortgage Credit Certificate (MCC) Program was established by Congress in 1984 as a way to provide assistance for first-time home buyers with the requisite low to moderate income levels. The program is funded by the federal government and one of the most comprehensive home buyer assistance programs. Many buyers who may qualify, however, know nothing about the program and its benefits.
Home buyers can apply for the MCC when they complete their mortgage loan application. The MCC covers the purchase of any single family or 2-4 unit dwelling that will serve as the borrower’s primary residence. If the buyer plans to use the property as an investment or for vacation purposes, it is not eligible for the MCC. The property value cannot exceed a maximum that differs by location. In addition, the buyer must apply at the time of the initial home purchase and not during a later financing of an existing loan. Under the MCC guidelines, a first-time home buyer is anyone who has not owned a primary residence in the past three years. So, having owned a home at some point in the past does not automatically disqualify a borrower from the MCC Program.
Indiana does have a couple of exceptions to the first-time home buyer requirement. Eligible veterans may be exempt from the first-time home buyer limitation. In addition, properties that are located inside what are known as “Targeted Areas” are exempt from the first-time home buyer requirements. There are thirty counties in the state of Indiana that are categorized as special “Targeted Areas.” In addition, there are many qualifying census tracts outside of the counties designated as “Targeted Area.” Borrowers, therefore, should check the location of the property they are buying to see if qualifies for an exemption to the first-time home buyer requirement.
The MCC Program works by providing a federal tax credit each year of up to $2,000. The actual amount of the tax credit equals a percent of the annual interest paid and accrued on the borrower’s mortgage loan. The federal income tax credit essentially creates a source of extra income for the borrower that could be used on the mortgage. This effective additional income also assists home buyers by improving some of the payment-to-income ratios banks use when evaluating potential borrowers.
Finally, the amount of the tax credit cannot exceed the borrower’s annual income tax liability after accounting for all sources of tax credits and deductions. For example, a borrower receiving the maximum $2000 tax credit must have a tax liability at the end of the year that exceeds $2000 after accounting for all other tax credits and deductions. In addition, the MCC Program tax credit reduces the amount of mortgage interest tax deduction that a borrower can claim. The itemized mortgage interest tax credit is reduced by the amount of the MCC tax credit.
For More information on this program or information to see if you qualify Contact Us Here
Is a down payment the only thing keeping you from purchasing a home?
For many young or first-time buyers, the thought of coming up with 20% to put down on a home is daunting. When you don't have equity from an existing home's sale to help improve your down payment amount, you are forced to save the entire amount. But before you assume that you have no option but to come up with 20% before entering the home buying market, you should know that there are other options available to you. Here are some of them.
Low Down Payment Loan Options
The first place to look is with some of the many low down payment loan options available for you. It's actually no longer true that you have to have a 20% down payment to buy a home. For first-time buyers especially, quite a number of programs are available to help you get past this hurdle.
The first place to look is with government-backed loans. Government-backed loans are guaranteed, at least in part, by a government agency, such as the Federal Housing Administration, USDA, or the VA. By purchasing a home using one of these loans, you put the lender at less risk, and thus the lender is willing to take on a loan with less down payment.
The FHA-backed loans allow you to pay as little as 3.5% down. You will have to pay mortgage insurance, but you won't need 20% down. If you or your spouse is a qualified service member or veteran, you can get a home for no down payment at all through the VA home loan program. While you pay a funding fee, that fee can be rolled into your loan and isn't much. The USDA also allows those buying in non-city areas the option to buy with no money down through the USDA home loan program.
You can also get a conventional loan with less than 20% down if your credit is fairly good. Some lenders will offer loans for as little as 3% down, and a few will allow select borrowers to burrow the full cost of the home. Keep in mind that you will pay mortgage insurance in this case as well.
If you choose a loan program that requires mortgage insurance, you aren't necessarily stuck paying that amount for the life of the loan. You can ask for it to be removed or refinance the home when property values change and you no longer own more than 80% of the home's value. Also, certain loans will automatically drop the insurance after a set number of years.
Friends and Family
If you have trusted friends and family who have access to money, you may be able to set up a loan for the down payment amount. However, a loan, even if it's from family, needs to be documented, and your lender will ask for that documentation. It may change your debt-to-income ratio, which may lower your borrowing power. Still, this can be an effective way to get the money you need for a down payment.
If your friends and family wish to give you a gift, you will need documentation that the gift was, in fact, a gift, and that the giver had the money to make the donation. However, if you have friends and family willing to do this for you, the gift won't lower your borrowing power. That said, some lenders are hesitant to lend to customers who have no money at all of their own to put down. One of the reasons lenders ask for a down payment is the fact that it shows the borrower is disciplined enough to save money for a major purchase, and that shows financial stability.
Local or State Down Payment Assistance Programs
Every single state has some sort of a program to help first-time or low-income buyers get the money they need for their down payment. While making a list of these programs isn't possible because they change regularly, it can be an option for some homebuyers. It may be location specific or borrower specific, so you will want to talk to your potential lender or your real estate agent about the possibilities in your area. However, make sure you look into all of these possibilities before assuming you can't afford a down payment.
Kentucky: Kentucky Housing Corporation
Tennessee: Tennessee Housing Development Authority
As you can see, there are options for those who don't have the moony upfront for a 20% down payment. If you're ready to enter the home buying market, and don't think you can save quite enough for a down payment, you have options! Talk to your lender or your agent about those options, and start looking for your new home.
Purchasing a new home is an exciting milestone in your life — but it also can be an intimidating responsibility. Most buyers put an offer on a home that appeals to them for a variety of different reasons, whether it's the location or the features inside the home or the land that surrounds the house. After their offer is accepted, they rely on the advice and insight of a home inspector who provides them with more details about the health of the home.
Despite the fact that buyers do their homework prior to closing on their new home, many are left with unexpected issues after the closing. There's so many anecdotes about buyers whose basements flood the day after they move in or who are faced with an HVAC system that doesn't work once summer arrives.
A home warranty may be able to provide some security and peace of mind, but these protection plans can carry with them a high price tag. This leaves many buyers wondering if they are really worth it?
Here's how you can decide if a home warranty is right for your home purchase:
Consider the Benefits of a Home Warranty
A home warranty provides an extra layer of protection for buyers who may have used much of their cash to fund the purchase of a home. Most people are not prepared to put out a significant amount of money for repairs and replacements immediately after closing on a house, so a home warranty protection plan may be appealing.
When a repair is covered by a home warranty, the homeowner is able to quickly call a representative who can provide a list of recommended contractors to complete the job. This can expedite the repair process, which minimizes the inconvenience to the new homeowner.
Home warranty benefits are renewable. Homeowners who invest in a home warranty plan can extend the benefits past the first year, which allows them to take advantage of benefits in the years to come.
Home warranties typically cover the repair and replacement of major appliances that often experience issues. Kitchen appliances, such as the refrigerator, and HVAC systems are commonly covered under home warranty plans. The costs of these replacements is significantly higher than the warranty plan itself, so many home buyers find it worth it to purchase a plan based on this fact alone.
Recognize the Disadvantages of these Protection Plans
Home warranty plans will typically only cover a repair if the homeowner uses one of their previously-approved contractors. This limits who can be contacted to complete the repair, and homeowners who use a contractor that was not approved by the warranty company likely won't get coverage for the repair or replacement.
Some policies limit the amount of coverage the individual will receive. If a homeowner has a particularly bad year with several significant repairs, they may not receive additional coverage if their quote has been met. Many plans cap coverage between $1,500 and $2,000.
Home warranty policies are notorious for their fine print. Home buyers who are considering purchasing one of these protection plans need to read the fine print carefully in order to fully understand what their coverage will be. For example, some repairs are only covered under specific circumstances that are outlined in the policy. If the failure of the equipment is the result of a circumstance that is not identified, it likely won't be covered under the home warranty.
Buyers who want the peace of mind that comes along with a home warranty but don't want to pay hundreds of dollars for the protection may consider using it as a negotiation tool. Many sellers are willing to include a home warranty with the purchase of a home, particularly if the home inspection highlights issues that may become larger problems in the future. For them, it might be cheaper to purchase a home warranty than to fix the potential problem. Sellers are able to appease the buyer and move forward with the purchase agreement, while buyers are able to rest easy knowing that they have the protection of a home warranty plan if an unforeseen issue arises shortly after the purchase of the property.
Ultimately, it's up to the individual buyer to determine whether a home warranty is worth the cost. Find out more about home warranty plans and the protection that these plans offer by contacting a real estate agent today.
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