Archive for San Diego Mortgage Credit Tips
Since starting in the mortgage business back in 2001 I have found that maybe 1 in 20 clients that come to me for credit improvement and counseling actually follow through with the plan to improve their scores and buy a home. Unfortunately old habits are hard to break and most people fall into the old routine once a huge improvement is not made in 30 days or so. An important thing to remember is that the FICO score model is made to show stability and most of the time it takes 3 to 6 months to get a big jump in scores and up to a year of doing the right things might be necessary.
This testimonial is from some clients that did EXACTLY what they were told to do and now because of it have a new home with a fixed mortgage at a ridiculously low rate.
Congratulations David and Tina, you worked as hard as I did and I’m sure you appreciate the fact that you earned it every time you pull up in your driveway or jump in your swimming pool.
Many of the ways that we used in the past to increase FICO scores cause more harm than good with the current rules for lending but we do still have a few powerful tools that can increase scores quickly to help you buy your San Diego dream home. One of these techniques is requesting a validation of debt. To be clear I am not saying to dispute items on your credit report at the bureau level because with the new rules a mortgage can NOT be funded with any active disputes showing on your credit report.
As stated in The Fair Debt Collection Practices Act, 15 USC 1692g Sec. 809 (b) anyone can require a creditor to validate a debt that they claim you owe. In this section of the Fair Debt Collection Practices Act it states that a creditor has 30 days to validate the debt that they claim you have or it MUST be removed from your credit report which will in turn raise your credit score. Unless you are completely sure that a bad debt is being reported accurately this technique should be used before paying or negotiation to pay a collection or charge-off account.
Many of the credit reports that I see on a daily basis have incorrect balances for collections, phantom debts and incorrect debt obligations listed on them and by using this technique many of them can be cleared up. With the score increase that this one technique can bring many perspective home buyers may get the FICO score needed to qualify for a mortgage loan and buy a home in San Diego.
For a complimentary credit evaluation or to get a copy of our form letter to send to falsely reporting creditors please call me at 619 285.2921 so that we can help you achieve your goal of owning a home.
Yesterday on the radio show (thank you again Jeff for having me on) I mentioned how home buyers who are waiting to see if San Diego Real Estate prices will drop more might be missing the boat on the total cost of waiting. Here is a quick example on how interest rate can affect the total cost of the home more than home value in this market.
Let’s compare a home with a 5% 30 year fixed mortgage and the same property with a 6% mortgage with a 5% reduction in price. For the example below I used a home priced at $400,000 at 5% interest and the same home at 5% less for the purchase price with the higher rate ( where analysts say rates will be by the end of the year) but the example can be modified for any purchase price and rate range. As you can see the higher purchase price and loan amount has a LOWER payment by $105 per month. I understand that $105 dollars is not a huge amount of money but it might as well be a million dollars if it puts a buyer over the Debt-To-Income level that is needed to qualify for the loan.
In this image you can see that over the life of the loan that $105 per month really adds up to $53,730 in net savings. Hopefully at this point you can see the value of the savings and please note that this is at 0% interest so if the savings was properly invested or even just put in a savings account it would be much more (due to compound interest).
Here is where the real magic happens!! If that extra $105 dollars a month was put toward the mortgage payment you can see that the mortgage would be paid off in 26.42 years instead of 30. this would result in a total savings over the house at a “LOWER” price of $95,766.
For more information on how to reduce the total cost of a new loan or your existing loan (without a refinance) give me a call at the office @619-285-2921.
If you are in front of your radio tonight between 6 and 7 tune in to 107.9 FM to hear the radio show. If not you can hear the show live online at www.my1079.com by clicking the listen now button. I will be speaking about San Diego Real Estate and Mortgage market with Jeff Campbell from Jeff Campbell and Associates and we will be taking questions via his e-mail. Send an e-mail with any questions to myfavoriterealtor(at sign)yahoo.com to have your questions answered on the air.
Here is another short video from Kim at Credit Plus on how to make sure your FICO score is as high as possible. Having a high score is more important than ever when you are applying for a credit card, car loan or a new San Diego home mortgage. If you have any questions give me a call at the office at (619)285-2921 for a complimentary credit a debt evaluation.
Now it is more important than ever to know what you credit report looks like and what it contains when you are trying to buy a home and qualify for a San Diego home mortgage. In this short video Kim Castro from Credit Plus goes over the only REAL free credit report. This is a huge tool in fighting identity theft and disputing inaccurate reporting from the 3 credit bureaus. Once you have pulled a copy of your credit please feel free to call me at 619-285-2921 so that I can help you maximize and increase your FICO score and dispute any incorrect information that might be on the report . In many cases the way your debt is spread out is much more important than how much debt you have for the FICO scoring model and being proactive can help you qualify for the best San Diego home mortgage, auto loan or credit cards in the future.
Fannie Mae Lowers the Debt to Income Ratio to Qualify for Home Loans.
Fannie Mae has said that the debt to income (DTI) requirements for all applicants will be going down from 55% to 45% (more income to qualify) so anyone looking for a San Diego mortgage loan should re-qualify as soon as possible. On a regular basis Fannie Mae reviews the DU system (desktop underwriter) to limit losses and to ensure that credit risk assessment will stay strong on as many future loans as possible. The new rules will go into effect between now and December 12th and one major lender has already changed guidelines to the new levels. This new change in the San Diego mortgage and home buying process should not be a surprise considering the recent mortgage loan performance in San Diego and the rest of the country. From 2003 until just last year the maximum debt to income ratio on most home loans was 60%, these ratios do not include food , utility bills, gas, insurance or anything else that is not listed on the credit report. If you factor these in it is easy to see why home buyers didn’t have much left over at the end of the month. With just a few unexpected expenses a home owner qualifying at such a high ratio could easily contribute to the recent “correction” that we have seen in the San Diego real estate market.
Make Sure that You or Your Client Still Qualify for that New San Diego Mortgage Loan!
It is extremely important that all perspective home buyers get re-qualified for their San Diego Home Mortgage. Since most soon to be San Diego home buyers have been putting in multiple offers on many properties to try and have one accepted for MONTHS they might be pre approved at a higher DTI and will no longer qualify for the same price home. Working with an experienced mortgage planner is more important than ever because with a proper file there are some exceptions for this new rule. Fannie Mae has announced that on an exception basis some loans will be approved at up to 50% DTI. There must be strong compensating factors like a steady job history, a large amount of assets and high credit scores. It is extremely important that all documentation is packaged properly UP FRONT before the property search even starts and before anything is submitted to the lender to ensure that a strong case can be made for any exceptions. It may be necessary to pay off a few small debts or to restructure a file completely even if a borrower was pre-qualified just a month ago.
If you or someone that you know is looking to buy or refinance a home in San Diego now is the time to make sure you still qualify. Give us a call at 619-285-2921 or click here to apply online. You can also download out printable mortgage planning package by clicking here.
In a huge contrast to how things were a few years ago, these days it can be harder than ever to qualify for and close a San Diego mortgage loan.
Besides Freddie Mac, Fannie Mae and FHA having tighter rules, many lenders have more strict guidelines in place for financing that are called, “overlays”. Knowing which lenders have what overlays does help us place your San Diego home mortgage with a lender that will give us (and you) the fewest problems. I have come up with a list of the 5 most common hurdles that we have seen in the past 2 years that can and will keep your San Diego mortgage loan from closing. These apply if you are looking to buy real estate in San Diego or refinance your existing home.
1) You Owe Too Much Money.
This is one of the basic 4 C’s of lending. When you are applying for your new San Diego mortgage loan you have to show a CAPACITY to pay it back. The fact is, guidelines are changing rapidly and on Fannie Mae loans the debt to income ratio is being dropped from 55% to 45% (this was up to 60% last year). These ratios do not include food, utilities, auto and life insurance, auto expense, medical expense or any discretional spending. If you have balances on a lot of credit cards and car loans, you might owe too much money to qualify.
2) There are Issues with Your Tax Returns.
All loans today (with a few VERY rare exceptions) are done with full documentation. This means to qualify for your San Diego mortgage loan we will need to show underwriting your Tax Returns for the last 2 years. In the past this has mainly been a problem for people that are self employed because of “creative accounting practices” and excessive deductions. More recently I have seen issues with W2 employees ranging from non reimbursed tools for construction workers and mileage deductions for sales people to rental income not being fully disclosed or even shown on the wrong schedule of the returns.
3) The Property Does Not Appraise
This is another one of the 4 C’s of lending, COLLATERAL. It seems basic, but a lender will not loan you more than a home is worth or in this market 96.5% (FHA only) of what it’s worth. With the new HVCC guidelines and the big drop in San Diego home prices, many homes and condos are not getting an acceptable appraised value. It has always been said that Real Estate is a local business and here in San Diego our local market is changing at a rapid pace. We have been seeing a lack of inventory and multiple offers on listed properties which should show that supply and demand is pushing values higher but with the new appraisal guidelines many appraisals are coming up short.
4) The Condo Association is Broke or There Are Too Many Rentals in the Complex.
Getting condo financing for anything over 80% Loan to Value is impossible right now for any financing other than FHA. Both FHA and conventional sources of funding are getting stricter on condo financing and it’s actually easier to get manufactured home (think mobile home) loans then loans for condos because of a few big hurdles. Many San Diego condo complexes don’t have the reserves required to qualify them as lendable because they have too many people that are late on their dues or that have been foreclosed on. The other reason is that complexes are being turned down is that there are too many rental units. Lenders are now requiring that over 50% of the units need to be owner occupied and many in our area are not. This is why we check the financials, default levels and owner occupancy levels early in the process of getting your San Diego mortgage loan approved.
5) You or the Property Don’t Qualify for Private Mortgage Insurance.
In recent years (before 3 years ago) if you didn’t have 20% for a down payment you could just get a second mortgage. There was no problem doing a refinance or purchase loan in San Diego because there were companies lined up willing to loan up to 100% of a property’s value with a FICO score as low as 580. These loans went away almost overnight when property values started dropping and the only option besides FHA (which is government mortgage insurance) is to get PMI or Private Mortgage Insurance. As with everything in lending, these policies are harder to qualify because they require a lower debt to income ratio and a higher FICO score. Also, private mortgage insurance companies will not issue a policy on a condo.
These are just a few of the reasons why it is more important than ever to work with a local San Diego mortgage expert. If you have any questions or would like to pre-qualify, give me a call at (619)285-2921.
Last Friday The Department of Housing and Urban Development (HUD) had a news release that will impact the San Diego mortgage process quite a bit. HUD controls the Federal Housing Administration (FHA) insured mortgage programs that have seen a huge increase in popularity since the “mortgage meltdown”. Fridays press release gave reference to plans to implement a set of new credit policy changes that will strengthen the agency’s risk management. Rumors have been going around that FHA has dropped below the capital reserve ratio of 2% mandated by congress. They have also announced that a new position of Chief Risk Officer will be created for the first time in FHA’s 75 year history.
Most first time home buyers are using FHA programs for their San Diego mortgage since they allow up to 96.5% financing so the stability and survival of the program is extremely important. These changes take effect January 1st 2010 and have an effect on who can originate FHA loans, the appraisal process and reserve requirements for lenders that originate FHA mortgage loans. This news seems to be very positive for consumers and hopefully for the San Diego housing market as a whole.
To see the press release CLICK HERE.
Apply now for your new mortgage!
When looking for a San Diego home mortgage, good credit is more than worth the effort it takes to both achieve and preserve. If you have good credit, I hope these tips will help you push your scores even higher. If you have less than perfect credit, now is the time to start rebuilding it so that you can qualify for the right San Diego home mortgage. If you are planning on buying a home in the next 6 to 12 months you cannot afford to make these mistakes!
Do not get behind on any existing accounts. Just one 30 day late payment will drop your credit score 25 to 75 points. If you miss a mortgage payment you may be disqualified from getting a new San Diego home mortgage completely.
Do not pay old collections, charge offs or medical bills. I know that this one sounds crazy but paying on old collection account will immediately make your FICO score drop. You should not pay off old accounts before or during your escrow unless the underwriter for your new San Diego home mortgage is the one instructing you to do so.
Do not close credit card accounts. In the past BEFORE the FICO score model some banks and lenders would want you to close accounts because if you had access to the credit the assumption was that you would use it. Now when you close a credit card account it will make your credit score drop on the next bureau update. A big part of the credit scoring model is how much debt compared to the amount of your available credit. On your revolving accounts you should be sure to keep your balances low. Having balances under 35% will give you the maximum credit scoring results. For this reason you don’t want to consolidate your credit card balances onto one or 2 cards. The length of your credit history is also very important. So if you have to close an account make sure it is a newer one.
A question that I get all the time is, “How fast can my score go up 100 points?” ,unfortunately the only way that the credit score moves fast is DOWN. When you are trying to get a San Diego home mortgage doing NOTHING is better than doing anything fast. The FICO system and credit scoring model is set up to reward stability. If you start changing things around (especially doing the wrong things) and your credit usage habits change drastically, it will almost always make your credit score drop.
If you have any credit or San Diego home mortgage questions or would like a copy of our Credit Scoring booklet give me a call at (619)285-2921 today.