- By Josh Turpin

It takes a lifetime to build perfect credit and only seconds for it to come crashing down.  When buying a home or refinancing, the credit factor is quite possibly the most important. It is something you need to understand to avoid paying too much for a home loan. 
 
Credit Basics – Knowing is Half the Battle
First, let’s talk credit basics.  It is important you understand how good credit scores are built before you try to comprehend how they can be devastated. 
 
There are three credit bureaus (technically they are called Credit Reporting Agencies or CRAs). The three CRAs are  Experian, Equifax, and TransUnion.  Each of them is responsible for collecting, analyzing, and disseminating this data to various credit providers like Factual Data.  Companies like Factual Data obtain data from all three bureaus and compile it into one report called a “tri-merge” credit report.  Various credit providers purchase these reports from the providers and use them to make decisions on whether to extend a consumer credit.

Click Here To Have a Professional Mortgage Lender Do a Custom Credit Review

Quite often I speak to customers and they may say something like, “I have a 700 credit score.”  Then, upon investigating further, I find that the score used for mortgage lending purposes is actually much lower.  Why?  Because they have three scores and people tend to cling onto their highest one.  In all reality, when making mortgage lending decisions, we use the middle score.  If there is a co-borrower, we use the lowest middle credit score of both borrowers.  In the above scenario, the person may have had a 700, 675, and 625 respectively.  In that case we would use the score of 675.
 
Why are the scores different?  - Because not all creditors report to every credit bureau.  Again, why?  Because it costs them money to report to each of them and some creditors choose to only report to one or two of them to save money. 
 
How are credit scores calculated? – The method behind the madness.
This is a tricky question as there are tiny adjustments that can be made to a person’s current credit situation to make significant changes.  However, according to this article from Wikipedia, there is some reason to a credit score’s rhyme and credit scores are derived from the following sources:

• "35%: payment history: This is best described as the presence or lack of derogatory information. Bankruptcy, liens, judgments, settlements, charge offs, repossessions, foreclosures, and late payments can cause a FICO score to drop.
• 30%: debt burden: This category considers a number of debt specific measurements, and not just the infamous credit card debt to limit ratio, as is commonly misreported. According to FICO there are some six different metrics in the debt category including the debt to limit ratio, number of accounts with balances, amount owed across different types of accounts, and the amount paid down on installment loans.[6]
• 15%: length of credit history aka Time in File: As a credit history ages it can have a positive impact on its FICO score. There are two metrics in this category: the average age of the accounts on your report and the age of the oldest account.
• 10%: types of credit used (installment, revolving, consumer finance, mortgage): Consumers can benefit by having a history of managing different types of credit.[7]
• 10%: recent searches for credit: hard credit inquiries, which occur when consumers apply for a credit card or loan (revolving or otherwise), can hurt scores, especially if done in great numbers. Individuals who are "rate shopping" for a mortgage, auto loan, or student loan over a short period (two weeks or 45 days, depending on the generation of FICO score used) will likely not experience a meaningful decrease in their scores as a result of these types of inquiries, as the FICO scoring model considers all of those types of hard inquiries that occur within 14 or 45 days of each other as only one. Further, mortgage, auto, and student loan inquiries do not count at all in your FICO score if they are less than 30 days old. While all credit inquiries are recorded and displayed on personal credit reports for two years they have no effect after the first year because FICO's scoring system ignores them after 12 months.[citation needed] Credit inquiries that were made by the consumer (such as pulling a credit report for personal use), by an employer (for employee verification), or by companies initiating pre-screened offers of credit or insurance do not have any impact on a credit score: these are called "soft inquiries" or "soft pulls", and do not appear on a credit report used by lenders, only on personal reports. Soft inquiries are not considered by credit scoring systems."

 
Time Heals All Things
So, you can see that since a whopping 35% of a person’s credit score is attributed to payment history, sometimes the only thing that can effectively heal a person’s credit is time.  Additionally 15% of your score can be attributed to length of credit history.  Therefore, a person who has had a solid track record of credit use for 35 years will feel less effect on their credit for one mistaken late payment than someone who has only had credit for a couple years.
Time may heal most things but it is often an unfortunate thing when it comes to buying a home.  That is why it is important to talk to a mortgage lender way in advance of buying a home.  This way, you can address any issues that may come up before finding your dream home and use time to your advantage.  
 
But What If You Don’t Have a Lot of Time
It is always best to progress slowly and with caution when it comes to home finance.  Whether purchasing or refinancing, planning ahead is wise.  However, there are circumstances when it becomes necessary to act quickly – otherwise opportunities can be missed.  So, if you find yourself in a situation where you need to try to quickly raise your credit scores to qualify for a home loan (or a better one for that matter), there are some things you can do to make it happen faster.  Below are a few of those things.

1. Pay Down Revolving Debt – The proportionate amount of outstanding credit compared to the available credit limit is a huge factor in credit scores. Paige White with Credit Law Center out of Lee’s Summit, Missouri provided us some insight.  “Keep all credit card balances below 30% at all times,” she says.  Anything over 30% will greatly hinder your credit score.

This may seem obvious but paying down your revolving debt as much as you can will have a huge effect on your credit.  The more you pay it down the more effect it will have.  So, pay it off if you can.  Beware, one common mistake is to pay off a credit card and subsequently cancel the account.  You want to have some open accounts on your credit and cancelling all of them can have an adverse effect on your credit.  If you are dead set on cancelling accounts cancel the newer accounts and let the ones you have had the longest remain open…they show established credit.

1. Raise Your Credit Card Balances – Let’s say you have an outstanding balance of $1,000 on a credit card that has a $1,000 limit.  By increasing the limit to $2,000 you will have a lower balance compared to the credit limit which will help your credit scores.  Again, the lower the proportionate amount, the more effect it will have on your credit.

1. Don’t Pay Off Collections – It may surprise some people that paying off collections can actually decrease your credit scores.  According to Paige at Credit Law Centers, “Paying off collections after they are reported to your credit report will NOT increase your scores but may actually decrease your scores as it will “re-age” the account.”  This means that it brings the account up to date as a current collection and could really hinder your scores.  If you have collections and are applying for a mortgage loan, wait for your loan officer to tell you to pay off the accounts.  Usually this can be a loan condition that can be done after approval.  Once approved you already have the credit scores needed for approval.  So, if they are paid off later and your scores drop a little, it shouldn’t hinder your loan approval status.

1. Get More Credit For A Healthy Credit Profile – Getting more credit to help your credit doesn’t sound very reasonable.  But, having 3-5 revolving lines of credit and 1-3 installment lines are the sweet spots in the credit world.  When applying to a home loan, having no credit can be as devastating as having bad credit.  If addressed ahead of time instead of the last minute, a borrower can go open a couple credit lines, use it responsibly, and increase their credit rating rather quickly.  Typically we recommend contacting Capital One to get a small balance card or to open a retail card like Khols.  These are easy types of credit to obtain. The key is to make sure all of these types of credit are used responsibly and all payments are made on time.  We usually suggest charging $50-100 per month, let it report on the card at least one month, and then pay it off.  Doing this can help increase your scores rather quickly.

1. Never Be Late! – Obviously. -  This may seem pretty obvious.  But, what may not be so obvious is that one late payment can decrease someone’s score very quickly.  Paige White at Credit Law Center states, “One late payment can decrease someone's scores by 100 points overnight - Never be late!” 

 
Call In the Professionals
We have mentioned Credit Law Center out of Lee’s Summit, Missouri several times in this article and there is good reason for that.  There are TONS of unscrupulous “credit repair” schemes out there.    I’ve seen it all.  A great many of them do nothing but take your money.  Some of them have upfront fees.  Some of them have monthly fees.  Most of them will make money on the consumer regardless of whether they even help them increase their credit scores.  At Credit Law Center, you work with real attorneys - people who can get stuff done.  With Paige and the crew, you don’t pay until it goes away.  Quite simply, they are the best I’ve have ever seen.  Below is their contact information.
 
Credit Law Center
Paige White
255 NW Blue Barkway Ste. 200
Lee’s Summit, MO 64063
Ph. 816-272-8859
www.creditlawcenter.com
 
Don’t Procrastinate
DO NOT wait until the last minute to know your credit status.  It is silly, and quite frankly irresponsible, to wait until you need credit to know your ability to obtain it.  Knowing in advance will help you prepare so you can work towards improving your credit rating.  Having the best credit rating possible will ensure you that you will get the best possible rates on things like home loan, auto loans, and even insurance.  Not knowing is likely to cost you a substantial amount of money over the long haul.

For a custom mortgage quote, click the Quick Application button below and we will contact you directly.

By Josh Turpin

A decade ago 100% financing options were the norm for buying a home.  The thought was, why put any money down if you don’t have to?  Although there are pros and cons to putting money down, when it comes to buying a home nowadays, there are very few 100% financing options available. Typically there is a minimum down payment of 3.5% (for FHA loans).  This money has to be sourced and seasoned and cannot be borrowed.  That being said, there are some crafty ways to raise your down payment with little-to-no money out of your own pocket. 
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Using Gift Funds For a Down Payment
Not everyone has a rich uncle willing to buy them a home.  Likewise, most home buyers will need to use some sort of financing to buy their home. In this case, there are certain rules that apply to the funds involved in the transaction.  Making sure the funds are not borrowed in any way is one of those rules.  The money has to be gifted. 

Rich uncle aside, you might be surprised who may step up to the plate when it comes to helping you get into a home.  Quite often I have seen borrowers obtain money from a family member in order to pay for a minimal down payment.  Funds obtained by another entity to buy a home typically fall under the category of “gift funds”.  Most home loan programs allow gift funds as long as they are from one of the following types of entities:

• The borrower's relative
• The borrower's employer or labor union
• A close friend with a clearly defined and documented interest in the borrower
• A charitable organization
• A governmental agency or public entity that has a program providing home ownership assistance to low- and moderate-income families, or first-time home buyers.

 
One imperative requirement of gift funds is that they CANNOT BE A LOAN.  This means there can be no expectation of repayment.  This also means there will have to be a signed Gift Funds Letter that is a written agreement between the giver and receiver that states the funds are a gift, not a loan, and there is no expectation of repayment. It will need to be signed by both the giver and the borrowers.

Another requirement of the gift funds are that they need to be sourced and seasoned (just like any other money used when obtaining a mortgage).  This means the giver will be required to show where the money came from.  This money will also have to be tracked as it moves from their account to the closing transaction.  So, if they gift the money directly to the receiver, the parties will need to show the money coming out of the giver’s account and going into the receiver’s account.  This is why it is very important NOT TO PROVIDE GIFT FUNDS IN THE FORM OF CASH.  Therefore, if the giver is sitting on a ton of “mattress money,” they will need to deposit the money into their bank account, let it sit there for at least 30 days, and then gift it to the home buyer. 

One way to avoid having to go through the pain of showing all of these transactions is for the giver to pay the funds at closing directly to the title company. They will still have to source it by showing an account statement but there is less paperwork to provide.

Remember, when buying a home, you have to consider not only down payment but also closing costs and pre-paid items.  Such closing costs will include lender fees, title charges, the cost of an appraisal, and other various fees.  Prepaid items include setting up an escrow account to pay taxes and insurance when they come due.  These items add up quickly.  For a low down payment program, these costs can even exceed the amount of the down payment.  See my article, “How to Avoid Paying Closing Costs When Buying a House,” for more information on how to avoid such out of pocket costs.

Regardless of whether you pay the down payment or closing costs out of pocket or raise it via another means, it is important that the financing you do obtain is competitive.  That is where I step in.  Contact Me to obtain a free, no obligation, quote on for your next home purchase loan!

Click the Quick Application button below to submit your information now.

When we think of first time home buyers we think of a budding young couple braving the world to start a new life.  The truth is, we see first time home buyers from all generations.  Buying a home for the first time can be daunting for a person of any age - especially when it comes to financing that home. That is why it is important to know the tips and tricks of obtaining the right mortgage for your particular situation.  Thankfully this article is here to guide you through the steps!

Start With A Pre-Approval
First, let me say there is a distinct difference between a pre-qualification and a pre-approval.  The latter insinuates the loan officer has done his or her job properly to obtain the detailed information and documents needed needed to properly approve a loan.  Not doing so is a severe injustice for the buyer.  It will certainly mean changes in terms, loan program, and possibly even prohibit the excited buyer from even obtaining financing.   Too many times do I see an excited young buyer come in to get a home loan with the home of their dreams already picked out. Then, once we have obtained their income documents, they realize they cannot afford that house and their dreams come shattering down.  I am not going to beat a dead horse here.  So, bottom line:  Get Pre-Approved before going out and looking for a home. Click here to get started with a pre-approval!

Search For Any Available Down Payment Assistance
Many state and local governments provide periodic incentives for buyers to locate there.  For instance the State of Kansas provides a down payment assistance program for people looking for housing in certain areas.  Most of these programs have certain restrictions and are truly intended for those who need the assistance. 

Pick The Loan Program That's Right For You
Each home buyer is different.  Things such as different income levels, different financial assets, and different credit profiles make each borrower unique.  Don't go into buying a home without knowing what type of loan is right for your specific situation.  For instance, a borrower who has mediocre credit and sufficient assets to put 5% down on a home may assume they are going to obtain a conventional home loan.  However, upon looking closer, they may realize that the PMI (private mortgage insurance) is way high - thus making their payment much higher than they may be able to obtain using a federally insured FHA home loan.  It is important to talk to a licensed loan officer that is qualified and able to review the individual's unique situation and advise them on the loan program that is going to provide them the best benefits.

Work With A Realtor That is Knowledgeable In Your Market
It is a common misconception that you can save money by not using a licensed real estate professional.  Nothing could be further from the truth - especially for first time home buyers. First off, the seller is typically the person who pays an agent's commission.  If you don't use an agent as a buyer, the seller's agent keeps the whole commission.  You, the buyer, then have nobody in your corner when it comes to negotiating and ensuring you are getting a fair shake.  As your exclusive agent there is a fiduciary responsibility.  This means your agent puts your interests before theirs.  Something that is invaluable as a buyer.  Also, a quality agent will know the good neighborhoods that are more likely to increase in price and be able to point you in the right direction throughout the entire process.  Not only is a buyer's agent helpful, in my opinion, they are necessary.  This article from US New & World Report titled, 9 Common Myths That Plague Buyers & Sellers outlines several other common misconceptions.  

Be Prepared!
Regardless of where you buy a home, make sure you are prepared with the right financing prior to going out to search for homes.  This makes you a more attractive buyer which means you are more likely to land a home if a bidding war starts. Not being pre-approved and knowing exactly what type of loan, payment terms, and such will likely result in a very bad experience. Remember there is no such thing as planning to fail, only failing to plan!

Click The Button Below to Begin Your Home Planning Process!
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Our ladies and gentlemen in uniform sacrifice a great deal to serve their country.  Often leaving their families for lengthy assignments, sacrificing their own comfort, to make sure the rest of us can live in comfort back at home.  The least we can do, as citizens, is to provide them some comfort when they return. And what more comfort is there than to have your own pad to kick up your feet? That is one reason veterans can receive some of the best home financing terms available.  Thanks to the Veterans Administration's (VA) guaranteed home loans, which allow some really attractive terms and conditions, they can.  These stellar financing terms are available whether the veteran is purchasing a home or refinancing.  In fact, veterans can take cash out up to 100% of the value of their homes for things like consolidating credit card debt!  

There are three primary types of VA loans available to service members.  They are Zero Down Purchase Loans, VA Interest Rate Reduction Loans (IRRL - pronounced "Earl"), and Cash Out VA Loans.  The first step is to determine if you qualify for a VA loan.  All are described below.

Qualifying For A VA Loan
In order to qualify for a VA loan, service members must be able to obtain a Certificate of Eligibility. Just because you were in the military doesn't necessarily mean you will qualify for a VA loan.  Service members must meet certain criteria.  Such criteria can be found on the Veterans Administration's website.  Below is a table that summarizes who may be eligible for a VA loan based upon when and how long they served.
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Zero Down VA Purchase Loans
The VA guaranteed mortgage allows qualified veterans to purchase a home with little to no money out of pocket. This 100% financing is very attractive for veterans and allows them to keep money in their bank account so it can be used for other needs (such as relocating and moving expenses, closing costs, etc.)  There is an option to put money down, which, can save money on the VA Funding Fee (more on that later).  If you are real estate savvy veteran or have a real estate agent that is, you can even get into a house with no money out of pocket at all!  This can be accomplished by having the seller pay closing costs and settlement fees.  Click Here to apply for a VA home purchase loan.

VA Interest Rate Reduction Loans (IRRL)
Pronounced "Earl" these loans were created to allow veterans to take advantage of low interest rate environments like today.  If a veteran has a VA loan rate that is relatively high and wants to simply reduce their rate without taking any cash out, this would be the program for them.  The IRRL loan allows veterans to refinance without having to obtain an appraisal or provide any income documentation.  This streamlined program is very simple to complete and can be done in much less time than a typical refinance transaction.  
Click Here to apply for a interest rate reduction loan.

VA Cash Out Refinance Loan - 100%
One of the huge benefits of a VA guaranteed loan is the ability to cash out 100% of the equity in a home.  With a VA loan, borrowers can use the equity in their homes to pay off other debt, complete upgrades to the home, or use the funds for nearly any other purpose (within reason of course).  Unlike conventional home loans that allow borrowers to take up to 80% of the appraised value, VA borrowers can utilize the full appraised value of their home! Click Here to apply for a cash out VA loan.

Pros and Cons of a VA Loan
There are other benefits of a VA loan that haven't been mentioned yet.  First off, because they are guaranteed by the VA, they prove less risky for lenders. Thus, rates on VA loans are typically lower than conventional loans.

The lending guidelines are a little looser for VA loans too.  For instance the minimum credit score is typically 620 for most VA lenders, Whereas a conventional borrower with a 620 credit score would be very difficult to finance, VA borrowers with credit challenges are easier to approve.  The income requirements are looser too.  Whereas a borrower may only qualify with a debt to income ratio (DTI) of up to 45%, veterans can qualify with most lenders with a DTI of up to 55%!  This is a tremendous benefit and opens a lot of doors for veterans.

Another attractive benefit is that unlike conventional loans that have PMI and FHA loans that have MIP (both types of mortgage insurance) VA loans do not have any mortgage insurance. This helps reduce the overall cost of borrowing for veterans.  On a $200,000 home, the payment difference between an FHA loan and a VA loan would be about $142 in mortgage insurance alone!  This allows for veterans to buy more house than a standard buyer.

There is one drawback of VA loans.  The VA charges an upfront funding fee for most VA loans.  This fee ranges from 1.25% to 3.3% depending on the down payment on purchases and whether the veteran has ever used a VA guaranteed loan before. That fee is less for people who have not used the fee and for those who put more money down on a purchase loan.  According the VA website you do not have to pay the fee if you are a:

• Veteran receiving VA compensation for a service-connected disability, OR
• Veteran who would be entitled to receive compensation for a service-connected disability if you did not receive retirement or active duty pay, OR
• Surviving spouse of a Veteran who died in service or from a service-connected disability

Well Deserved Benefits 
From everyone at United Fidelity Funding Corp. we want to say THANK YOU to all of our service men and women who have sacrificed so much to protect our freedoms at home and abroad.  If you ever need any assistance or have any questions about VA home loans, please don't hesitate to Contact Us.  We're here to help!

To see if you may qualify for a VA loan, start by filling out our Quick Application.  A qualified VA loan specialist will contact you immediately with details.

Contract Pitfalls - Part One of Many  
- By Josh Turpin

When it comes to writing a purchase contract to buy a new home, many borrowers rely heavily upon their real estate professional's guidance.  I believe it is always wise for a buyer to use and agent. This provides a level of protection for the buyer and a second set of eyes to help make sure all of the T's are crossed and I's are dotted. However, it never ceases to amaze me how many real estate agents fail to write a contract correctly the first time and, because of very small technical errors, have to amend the contract one or more times before the final draft is complete.  Don't get me wrong, I am not saying that these agents don't know their stuff.  On the contrary, many of the agents we work with are top of their field and write several contracts each month.  The problem lies in the structure of the contracts they are writing.  Most of these issues can be avoided with a bit of foresight and just a little communication

Here is where the problem lies: In most real estate transactions there is some sort of financing involved. It is typically one of the most vital components of the deal. Whether it be a government backed loan or a standard conventional loan, it is important to know how to structure the contract around the borrowers specific type of loan.  When it comes to financing the rules are very clear cut.  There are things you can do and things you can't.  As loan originators, we don't set the rules, that is up to Fannie Mae and Freddie Mac (for the most part).  We do however, have to follow them.  Below are a couple common contract errors related to financing made by agents that, if avoided, will help them close more deals faster with fewer issues.

Don't List Personal Property on The Purchase Contract
Quite frequently a real estate purchase contract will list a variety of unattached, personal property as a part of the transaction.  Mortgage loans CAN NOT be used to finance unattached, personal property.  For the most part things like appliances, window treatments, and fixtures can be included and not create a problem with the loan.  However things like patio furniture, inside furniture, and things like recreational vehicles cannot be added to a purchase contract (yes, I have seen RVs in contracts).  If they are, they will have to be removed via an addendum.  Your best be is to simply write a separate, simple bill of sale for $1, subject to (but not part of) the real estate contract closing.  This will prevent  you from having to amend the contract later on.

Don't List Specific Inspections or "Repair Work" To Be Completed
This may sound strange but we recently had an FHA purchase loan where the loan underwriter asked for a copy of the home inspection because it was dictated that some "minor repairs" be completed within the real estate purchase contract.  It also listed that the seller would pay for a home inspection. The property had passed the FHA appraisal inspection but the property condition inspection reported a few things that raised the question of the property's soundness.  Had this not be listed in the contract, it wouldn't have been required as a condition of the loan.  Fortunately we were able to get this completed by simply showing some paid invoices from the contractor that completed the work.  But, it definitely slowed down the transaction.

Be Cautious of Addendum and Amendments 
Frankly as a lender we really only care about the numbers within the contract.  Anything else is really not too important to our side of the transaction.  That is not to say that the attachments to the original contract that doesn't have any numbers cannot foul things up from on the loan.  For instance, an addendum that is added to the contract which requires some additional work to be completed, as long as it doesn't affect the appraisal value, is not a real concern of ours...if you get my drift.

Finally, be certain to know what type of financing the borrower is getting prior to writing the contract. Make sure they are actually APPROVED and not just pre-qualified (more on this later).  Some lenders will dole out pre-quals like handbills. They do this to try to capture the client early on  Then, once they get a complete loan file, they may have to switch the loan program. This is predominantly because they do not gather the proper information or documentation needed to properly approve the client.  It can be detrimental to a client. This causes more work for the realtor and the borrower as additional disclosures and addendum may be needed specific to that loan program.  A good loan officer will earn the business, not capture it, and get their borrowers approved prior to sending them out on the streets to look for houses.
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