Archive for May, 2007

Get the best price on a mortgage - Improving your credit score the easy way

Monday, May 21st, 2007



Your FICO score is the most important determining factor in saving money when you buy a home .  The FICO score you have will determine the loan-to-value ratio or percentage of the purchase price you may borrow.  The interest rate you pay on the life of the loan is dictated by your score; in other words, the impact can translate to hundreds of dollars a month more that you will pay on your mortgage.  The FICO score is an automated system designed to evaluate your payment history, derogatory marks (late payments, delinquencies, etc.), active accounts, types of credit used, and the percentage of used credit compared to available credit.  A computer software program will bring all this information down to a number to assist an underwriter in evaluating your credit report.  With this universal system in place for underwriting credit reports, subjectivity in the process of determining a borrower’s eligibility for credit is limited.

With the significant changes that have occurred in the sub-prime and even prime lending market, the demand for borrowers with high FICO scores has become greater today than ever before.  For a full documentation loan, in which case pay-stubs and W-2s are provided, the requirements have gone from a 600 FICO score to a score of 660.  For stated income loans where no income documentation is required, the required FICO score has gone from 620 all the way up to 700.  These numbers all pertain to 100% financing and coming in with a down payment will allow for slightly lower FICO scores.

The first thing you want to look at is the accuracy of the report.  Are all the accounts properly reflected?  If not, you’ll want to contact each of the major credit reporting agencies to correct any mistakes.  Paying down the balances on credit cards will produce the greatest improvement in your credit profile because the system calculates the ratio of used credit to available credit on the credit cards.  However, this does not apply to installment debt, like student and car loans.  If you cannot raise enough extra money to pay down your debt, the next best course of action is to increase the credit limits on your cards.  Again the system will calculate the ratio between available credit and used credit, therefore reflecting an improvement in your credit score.

Another technique that can work well is opening another card and transferring the balances.  This can free up additional credit and improve your FICO score.  When you have a husband and wife with substantially different credit scores an opportunity exists.  By adding the spouse with the lower scores on to the credit cards of the spouse with the higher scores, an increase in the lower FICO scores should occur.

It may seem like these changes will take a long time to occur; fortunately, however, when working with a mortgage broker, once the changes are in place the credit report can be rescored.  This process is called a rapid re-score and with letters from the credit card companies the changes can occur in one week.  Another tool available to mortgage brokers is called a what-if simulator.  This allows potential modification scenarios to be played on your credit report, to see what the end result will be before you spend the money and time to make those changes.

In conclusion, as you can see, much can be done to make improvements on your credit score and an experienced mortgage broker can be an extremely valuable asset to have while you are attempting to maximize or repair your credit report.


Co-written by Randy Nathan and James Dedolph, creators of where you can find San Diego Homes for Sale and where you can find the best rate and terms for First Time Home Buyer Programs in San Diego .  Both of these sites are a good resource for information about San Diego Real Estate for Sale .

California’s Answer for the Sub-prime Lending Melt down.

Wednesday, May 9th, 2007

Most first-time buyers are now faced with a higher credit score requirement and tighter standards after the sub-prime market went through its shakeup.  For many, that has created an additional challenge above and beyond the high cost of housing in California.  The answer to this is a very much overlooked first-time home-buyer program that solves this problem for many entry-level buyers with low FICO scores.  The CALHFA (California Housing Finance Agency) program is sponsored by the state of California and has many features not available anymore through sub-prime lending.

To start, the program allows for 100% financing with only a 620 fico score.  In the current lending environment, most programs now require at least a 660 FICO score.  Aside from the low FICO score requirement, loan approval can be accomplished with the buyer’s debt to income ratio exceeding 50%.  CALHFA offers the buyer below market interest rates on a loan that has a fixed rate of 30, 35, and 40 year terms.  With this type of loan, the consumer will never have to worry about his loan changing because it is not an adjustable rate mortgage product.

Currently available is an interest only loan with a 6% rate fixed for 35 years.  This is a type of loan product in which the buyer gets a loan once and never has to think about refinancing the home.  This type of loan program does require PMI (Primary Mortgage Insurance), but once you have reached a 20% equity position in the home and two years have gone by, you can eliminate the mortgage insurance and lower your payments even more, which is truly a better option for most homebuyers.

CALHFA also has available their HICAP (High Cost Area Home Purchase Assistance) program with $7,500 of assistance for down payment and their CHDAP (California Homebuyer’s Down-payment Assistance Program), which offers an additional 3% of the purchase price for down payment or closing cost assistance.  Many other community silent (no payment) second, third, fourth, and fifth loans can also be added to the loan to further lower the payments, by reducing the amount of principal that the buyer is borrowing.  Another very unique feature of this loan program is the Mortgage Protection Program.  This program can make up to six months of mortgage payments if the borrower becomes involuntarily unemployed and is receiving state unemployment benefits.

After reading, this I hope you have come to the conclusion that although buying your first home can be challenging in the aftermath of the sub-prime lending shakeup, there is still hope and with the right guidance from a knowledgeable professional, first-time housing can still be affordable.

Co-written by Randy Nathan and James Dedolph, creators of where you can find Homes for Sale in San Diego and where you can find the best rate and terms for Homes Loans in San Diego .  Both of these sites are a good resource for information about San Diego Real Estate .