7 Tips for Improving Your Credit Score

7 tips for improving credit score

Top Tips for Improving your credit score

If you want to apply for a mortgage to buy a home or refinance you will need a good credit score to get the best rates.  The higher the score, the more appealing your mortgage application will be to banks and lenders.  Here are some tips to help you boost your credit score:

1. Paying on time- Most important factor in achieving a good credit score is to pay your bills on time.  Delinquency can severely impact your credit score in a negative way.  A delinquency remains on your report for 7 years.  Payment history is the most important factor in your credit score so showing that you are reliably making payments to your debt obligations on time will look good to lenders.

2. Have Credit History- In order to have good credit, you need to have credit history.  Having available credit lines is a good thing especially if there is little or no balance on the cards.  Many people mistakenly think that having no credit cards or loans is good for your credit score.  What is actually good for your credit score is having open credit cards with low to zero balances and loan history.  Don’t close unused cards, keeping them open and balance free will help increase you score.

3. Pay down your credit cards- Paying down (and ideally paying off) your credit cards and other debt can greatly improve your credit score.  It is best to have your credit card balances below 30% of the card’s credit limit.  If the percentage is even less of course, that’s even better.  High debt on revolving credit can adversely affect credit scores.

4. Keep credit inquiries to a minimum- Too many hard inquiries on your recent credit history may make Mortgage Lenders concerned that you are planning on taking on new debts.  Don’t worry about shopping around for the best mortgage loan rates however.  The scoring systems take into account that people like to shop around for the right loan so multiple inquiries within a short period of time only count as one inquiry.  Checking your own credit, having your credit checked for employment, and “Pre-Approval” offers have no negative impact on your credit score.

5. Average Account Age Matters- Don’t open a lot of new accounts around the same time.  Part of your credit score is based on the average age of your open accounts.  Having too many new accounts can decrease your credit score average.

6. Check Your Credit Report-  You can request a free copy of your credit report annually form the 3 credit reporting agencies (Experian, Equifax, and Transunion).  Since your credit score is calculated from the information in your credit report it will help you to understand and target goals for improving your score.  Don’t forget to check for errors and if any are found, dispute.

7. Time- Improving a credit score is not an quick and easy task.  It takes time, consistency, and financial responsibility.  Making positive financial adjustments like the recommendations on this list can help bring along positive change.

Knowing Your Credit Score

In the home finance world, Credit Scores are a top factor in determining approval for a mortgage.  You cannot get very far in looking for mortgages without knowing your score and having good credit is key to getting a good loan.  Fortunately, there are many ways to find this information.

What are Credit Reports and who creates them?

There are three companies that prepare credit files that determine your creditworthiness; Equifax, Experian, and Transunion.  Whenever a loan or credit card is taken out or a charge or payment is made, the lending company reports it to these reporting agencies.  These companies then consolidate all of an individual’s credit, loan, and payment history together into a credit report with other financially relevant information such as addresses lived and employment info.

The reports usually list all used and available credit and loans broken down by the lenders you’ve borrowed from.  They also usually include record of the companies that asked to see your reports as well as information regarding if your loans are paid on time and how much you pay.

What is a “Credit Score?”

Equifax, Experian, and Transunion take the information they gathered on their credit reports and use formulas to calculate an individual’s credit score.   A credit score is a grading system that uses past credit history to determine how well you will handle and pay back future debts.

A good credit score to a mortgage lender shows a strong likelihood that the loan will be repaid since it show proof applicant’s reliability to meet credit obligations.  Good scores make lenders more inclined to approve a loan and give good rates.  On the contrary, a low credit score would show greater risk that the individual may default.  This info would make the mortgage lender more inclined to require higher interest rates or even deny loans due to the potential risk factors involved.

Checking Your Credit Report and Score

When checking your credit its important to understand that your score may not be the same across all three credit reporting companies.  Equifax, Experian, and Tansunion each have their own formulas for calculating credit scores and not all credit is necessarily reported to each company.  Despite the variations, an individual’s credit scores are for the most part fairly close across the three companies.  They are rarely more than a couple of points off.

By law you can receive from each of these companies one free copy of your credit report each year. Although these reports provide you with all the information at these companies disposal for calculating your credit scores, what is not included is the actual credit scores themselves.  You can purchase your scores directly from each company.  Some offer access through credit educational product subscriptions and in some cases even offer scores for “free” as long as the product is cancelled within a given period of time.

Despite the expense, many people find the credit educational products such as Experian’s credit tracker and Equifax Complete Advantage can be helpful tools for setting goals and tracking progress in improving credit scores.

You can retrieve your free annual credit reports from

https://www.annualcreditreport.com

They are the only website authorized by the federal government for giving free credit reports.  You may also contact them by phone:

1-877-322-8228

You may purchase your credit scores and browse some potentially beneficial credit products by directly visiting the reporting companies websites:

http://www.experian.com

http://www.equifax.com

http://www.transunion.com

HomePath Loans

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What is a HomePath Loan?

HomePath Mortgage is a financing program offered by Fannie Mae exclusively for Fannie Mae-owned properties.  HomePath offers a low 5% down payment with no lender required appraisal or mortgage insurance.   The loan program also allows expanded seller contributions for closing costs.

HomePath is available for primary and secondary residences as well as investments.  During the first 15 days a property is listed on HomePath.com only homebuyers who will occupy the property as their primary residence may bid and purchase.  This gives people looking for a new home a good window of time to make an offer before having to compete against investors.

Interest rates for HomePath tend to be 1% higher when compared to conventional and FHA loan rates.  Offering such a low down payment without the extra monthly mortgage insurance burden of FHA loans makes up for much of the difference.  This is especially true if taking into account the other saving such as closing cost contributions.

Fannie Mae began offering HomePath loans to help sell the influx of foreclosed properties they repossessed.  They do not want to be in the business of owning and managing properties so they designed HomePath to have streamlined mortgage requirements.   Having less barriers to qualifying for HomePath makes them more appealing to buyers getting the properties out of their hands quicker.

HomePath Renovation Mortgage Details

HomePath is not only offered for real estate that is move-in ready.  Some properties will need light to moderate renovations.  The HomePath Renovation Mortgage allows the homebuyer to bundle the funds for the home purchase and the renovation together into one loan.   The renovation portion of the loan is limited to 35% of the total loan and capped at $35,000.

HomePath Requirements, Do I Qualify?

First and foremost, to qualify for a HomePath Mortgage, Fannie Mae must own the property you are planning to purchase.  All eligible properties are listed on HomePath.com.  This smaller pool of real estate can make finding a desirable property in a specific area limited.   Homes must be bought through local real estate agents.  Fannie Mae will not accept offers directly from homebuyers.

As of November 2013 a HomePath Mortgage down payment has to be at least 5% down.  Beyond originating from an applicant’s savings, down payments may be gifted, from a grant, or even loaned from certain entities like nonprofits and employers.  There is no mortgage insurance requirement.  Applicants should expect to have a credit score at least 660 to qualify for 5% down.  People who have lower credit scores may still apply, but will need to place more money down to qualify.

HomePath Loan Tips

Since the smaller pools of available homes makes the best HomePath properties competitive, receiving a prequalification statement before negotiating an offer can be a good idea.  It is not a requirement by Fannie Mae to receive prequalification, but if one has the time and opportunity to go through the prequalification process with a lender it better positions them for negotiating an offer.   It also helps expedite the overall process regardless of the loan type.

Even though Fannie Mae waives the need to receive an appraisal or inspection it is a very important part of the home buying process. Knowing the value and condition of the property you are looking to buy can greatly affect your decision.  Knowing the cost of any needed repairs before you commit to purchasing a property is invaluable information and can prevent unwanted problems down the line.

Bottom Line

If you are buying a qualified Fannie Mae owned property and have a credit score of at least 660, a HomePath Loan can be the best mortgage you will find.  Its relatively affordable compared to the alternatives, fairly easy to qualify, and has many built inshort cuts to make the process quick and easy.  Paying approximately a percentage point higher interest than other loans is not positive, but the other savings mostly even it out. The biggest issue is limitations.  This loan product being exclusive to Fannie Mae owned properties means few option are available.  This makes finding a HomePath dream home hard to find.

Visit www.HomeSweetLender.com today to help you find and fund your dream home. 

 

 

Fannie Mae or Freddie Mac: Conforming Loans

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Fannie Mae, Freddie Mac and the Meaning of Conforming Loans

Money is finite.  If funding new loans relied exclusively on the money generated from the mortgages already in a lender’s portfolio the lending market would stall. Much of the lender’s monetary assets would be already locked up waiting for 15 and 30 year mortgages to mature.  They would be unable to offer new loans, because there would be no available money to lend.

To foster a healthy lending market, Fannie Mae and Freddie Mac were created.  Both of these institutions are government-sponsored enterprises (also known as GSE’s).  These mortgage focused GSE’s are publicly traded companies that were initially founded by the federal government to increase the number of lenders able to invest in the housing market.  They accomplish this through the secondary mortgage market (which they themselves established).  Both Fannie Mae and Freddie Mac purchase whole loans from lenders and repackage them in the form of mortgage-backed securities to sell to investors or retain directly.  This more immediate return frees up lenders’ funds allowing them to offer a greater abundance of loans.

Conforming loans “conform” to the terms and conditions set by Fannie Mae and Freddie Mac.  Since both entities are corporations and neither are part of the government these are considered conventional loans.  Both GSE’s will only buy loans that are conforming to its maximum loan size.  This conforming loan limit is based on the national annual mean home price and is dictated by the Federal Housing Finance Agency.  For 2014 the single-family max is $417,000 outside of designated “high cost areas” such as Hawaii and Alaska ($625,500 for single family in high cost areas).

Since GSE’s will not buy loans that are non-conforming (over their max sizes), they have lesser demand in the secondary market.  This makes the non-conforming loans a bigger risk for the lender and thus higher rates.

Don’t forget to visit HomeSweetLender.com for all your mortgage news, to compare mortgage rates, and request free mortgage quotes. We pride ourselves in matching customers with the right mortgage lender options for their needs.

What are Conventional Loans?

Home buying

Conventional Loans Defined: Know the Difference

Conventional loans are the most common mortgage loan type in America.  It is also the broadest loan category with varying loan terms and subgroups falling under its name.  The most popular form of a conventional loan is a 30 year fixed rate mortgage.

The one unifying characteristic for all conventional mortgage loans is that private lenders provide them with no government-backed guarantee if a borrower defaults.  This is a contrast to the mortgage insurance safety nets provided by government agencies such as the Federal Housing Administration (FHA loans) and U.S. Department of Veterans Affairs (VA Loans).  To put it simply, almost every mortgage loan that is not issued by a government agency can be considered a conventional loan.

Interest rates on conventional loans vary greatly. When it comes to qualifying applicants, conventional lenders are much stricter due to the added risk associated with a lack of protection against mortgage defaults.  This means that the best mortgage rates are reserved for those with excellent credit scores, and a substantial amount of money to put as a down payment.  The minimum credit score for conventional loans is usually 620, but the interest rates available to borrowers with that score are typically much higher, and therefore undesirable.   For most lenders the ideal down payment amount is 20%.  On the positive side, we are starting to see more and more conventional mortgage lenders beginning to accept 10%, and even 5% down.

FHA Loans Explained

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What Are FHA Loans?

 FHA stands for Federal Housing Administration. This self-funded government body provides mortgage lenders with insurance against potential mortgage defaults, allowing them to fund lower income borrowers.  If the homeowner were to default on their loan the FHA would pay a claim to the lender, greatly decreasing their risk.  This assurance allows the lender to offer down payments as low as 3.5% at low rates competitive with (and in most cases lower than) those of conventional loans.  As an added bonus to the borrower, these loans can include most of the homeowner’s closing costs.

The standards to qualify for an FHA loan are much tamer than traditional loan requirements.  In many cases a borrower of an FHA mortgage loan could have a credit score 200 points lower than someone applying for a conventional loan and could very likely not only be approved, but also receive a better rate.  Traditional lenders are most likely to approve and give their best rates to applicants with pristine credit scores and down payments of 20%.  To add to this contrast, the FHA even allows part of the down payment to be gifted from a relative.  The FHA’s leniency on their qualifying points makes it a clear choice for many in the market for buying a house.

FHA loans are very appealing for first time home buyers and those with lower income who do not have a lot of money saved up for a substantial down payment.  This is for good reason.  The Federal Housing Administration was created by congress in 1934 specifically to grow the percentage of homeowners in America.  It is the government’s only entirely self-funded agency operating entirely off of the income generated from the mortgage proceeds.  Today the FHA proudly claims to have insured 34 million home mortgages since its creation bringing America from a country of renters where only 40% of households were owned to about 70% today.

You can learn more about their impressive statistics and origins directly from the FHA government website.

Will I qualify for an FHA Loan?

Even though they are more lenient than their conventional counterparts, there are still several criteria that must be met in order to qualify for an FHA loan.

Though having a high credit score isn’t an imperative factor for FHA you still must reach 580 to qualify.  With an increased down payment of 10% however, credit scores as low as 500 have been qualified.  Regardless of credit score, it is important to have a good monthly debt to income ratio below 50% in order to be accepted.

Gifts for down payments must meet certain criteria in order to be acceptable.  Money cannot be borrowed for a down payment.  This means no secondary bank loans, credit cards, or even casual “pay back when you can” loans from a friend or family member.  A good example of a gift that would be approved would be a relative giving you money as a literal gift where no future payback is expected from either party.


What are the downsides to FHA Loans?

There are added obligations and limitations that may make FHA loans not necessarily the best choice for you.

FHA loans have the added cost of two different types of Mortgage Insurance.  The borrower is required to pay at closing an Upfront Mortgage Premium which is 1.75% of the total price of the loan.  The Upfront Mortgage Premium is added on to the borrowed loan balance.  The additional insurance is the Annual Mortgage Insurance Premium which is wrapped into the monthly mortgage payment.

Depending on where you are searching for your home, you may find FHA approved housing to be scarce.  Not every house on the market is approved for an FHA loan.  While some homebuyers are blessed to be in areas with an abundance of FHA approved properties, people in big cities like New York or Los Angeles can find it difficult to find properties that meet FHA approval standards.  This is especially true of buyers searching for FHA approved condos which are extremely rare regardless of where you are looking.  Some daunting statistic from John McDermott of Mortgage National News states that less than 10% of all US condos are approved for FHA loans and over 60% of complexes that applied for FHA approval in 2013 were denied.  To see if a condominium qualifies for an FHA loan visit the government website portal here.

The Bottom Line

FHA Loans are an excellent option for those desiring to buy a house with the benefit of receiving competitive rates for low down payments and lenient borrowing standards.  Mortgage insurance and the fact that some home types/areas simply do not have FHA approved properties available make it not the best choice for those with very good credit and more money to spare for a bigger down payment.  For those buyers conventional loans will be far less limiting.

Welcome to Home Sweet Lender

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Welcome to Home Sweet Lender

Thank you for visiting our website, we hope you’ll come back often to take advantage of our mortgage tools, helpful guides, get your mortgage/home owner news and more!

What We Do

Home Sweet Lender provides information to people looking to buy a home. Whether you are looking to purchase your first home, looking for investment properties, or buying a vacation home we can help. The home buying and funding process can be time consuming and intimidating, but we hope to remedy that with helpful tips and guides. You can visit our website blog to get all the news and information you need to find funding for your dream property.

Beyond useful content, Home Sweet Lender provides tools to help guide you through the home buying process. Our mortgage calculator helps you estimate what you would be spending should you invest in a particular property. By figuring out what your monthly payments would be, you can determine whether or not a property falls within your budget. It’s better to figure out monthly payments in advance before moving forward with the buying process. Save time and money by calculating today. In addition to our mortgage calculator, we also offer a mortgage rate table. The rate table shows approximately what you could expect to pay in interest and fees for a mortgage. You can find lenders in your area who are offering funding to qualified applicants, and see what their fee charges are.

When you’re ready to look for funding, Home Sweet Lender can help by matching you with mortgage lenders. Simply enter your information into our form to get free mortgage quotes.  Our mortgage lender matching service automatically searches certified lenders in your area to help you find the right one for the loan you need. If our system finds a match for your funding needs, you will receive a congratulations notice and be contacted by the lender directly. You do not have to commit to any mortgage offer that does not meet your budgetary needs. Should you find the terms of your mortgage loan offer agreeable, you may sign the loan agreement. 

What We Don’t Do

Home Sweet Lender operates as a mortgage lead generation company connecting customers like you with lenders in your area. We have established an extensive network of certified lenders across the U.S. ready to fund qualified home owners. Home Sweet Lender does not provide mortgage funding directly, but can help you find the funding you need.

You can afford your dream home today with an affordable mortgage, or refinance your current home to afford that renovation. It’s easy when you compare mortgage rates at Home Sweet Lender.

Our lender matching process is quick and easy.  Its a fast and convenient way to get mortgage quotes for the funding you need. Start the search and compare mortgage rates today!

Request a free quote from a mortgage lender now!