Buying a home with a poor credit history

Having a great credit score and a super clean payment history are obviously preferred by most lenders. 

If you’re a homebuyer that is financially ready to purchase a home, but lack a robust credit history then check out these helpful tips.

Tip 1 – Don’t assume you can’t qualify for a mortgage if you have a low credit score because of a limited credit profile — or even no credit score at all. Some lenders are willing to work with borrowers to establish a nontraditional credit profile or to find ways to improve a low credit score.

Tip 2 – A larger down payment, higher levels of cash reserves, and a verifiable income that can easily cover your mortgage payment can help compensate for credit issues.

Tip 3 – Applying for a credit card and using it responsibly can boost your credit score, but you can also rely on other sources to establish your financial history, such as your rent payment and other bills.

Tip 4 – It’s a good idea to talk to your lender about their programs and know your options BEFORE you look at homes. You don’t want to get your hopes set on a home, and then not be able to afford it. 

Are you ready for a no obligation home consultation? Contact your home loan experts today!

DO CREDIT PULLS LOWER MY SCORE?

It’s a common misconception among borrowers that multiple credit pulls will drop their credit score. However, the three big credit bureaus (Experian, TransUnion, and Equifax) state it plainly: a borrower’s score will not drop when a mortgage lender pulls their credit more than once in a two-week period. So, why is this the case?

Not all credit checks are weighted equally. A credit card application carries more weight on credit than a mortgage loan. Credit card debts have a tendency to increase over time, make for larger risk which lowers credit. Mortgage debt, by contrast, eventually pays down to $0, so mortgage loan checks don’t have as much weight on overall credit score.

Soft Inquiries

Soft credit inquiries usually happen when a person who is not a potential lender, looks at someone’s credit score. This happens when you check your own credit score, an employer looks at your credit for a background check, or a lender pre-approves you for a credit card or loan offers. However, there may be instances where your lender will need to do a soft inquiry at the end of your loan transaction. (Ask your lender for more information about this.)

These credit checks can be done without permission and are not customer driven so they will not affect the credit score.

Hard Inquiries

A hard credit inquiry is when a financial institution, such as a lender or credit card company checks a person’s credit while deciding whether or not to extend an offer of credit. They most often take place when a person is making a large financial decision such as applying for a mortgage, loan, or credit card.

Typically, a person must authorize the third party to do this, so you should always be aware of any record of hard inquiry on your credit report. Hard inquiries can lower a credit score and can remain on the credit report for two years. But with time, the damage to the credit score decreases or disappears altogether.

A hard inquiry will happen when you apply for:

A mortgage

Credit cards

Auto loans

Student loans

Business loans

If you’re going through the home buying process, but still shopping around for the right lender for you, avoid hard inquiries at all costs. You’ll want your credit to be as high as possible when you decide on your lender, and credit inquiries make up 10% of your credit score.

It’s also important to sort out your mortgage shopping within a 14-day timeframe. If the inquiries are properly managed, the credit bureaus will acknowledge the first credit pull but will ignore each following check.

Another Credit Myth

Credit pulls aren’t the only misconception when it comes to how your credit score impacts your home loan. Some borrowers assume they won’t qualify for a home loan if they don’t have an outstanding score. Although your score is a factor in the approval process, there are loan options specifically for homebuyers with a lower credit score.

The truth is this, you might have more loan options than you think. Each person’s financial situation is different, so it’s important to speak with a Mortgage Advisor about your specific needs. However, The Polder Group at Summit Funding has multiple resources that can help get you started on your journey toward homeownership.

Let’s start with the minimum FICO credit score needed for our low credit score loans:

FHA Loan: 580

USDA Loan*: 600

VA Loan: 580

Government-backed loans remove the risk of default off of the mortgage company because the government insures or guarantees the loan, which in turn allows the minimum credit score to be lower.

Now, what about your down payment? Chances are, if you’re working toward paying off debt, you don’t want to front the traditional down payment amount. Thankfully, loan options that require a lower credit score usually require a lower down payment as well.

FHA Loan: minimum 3.5% down payment required

USDA Loan*: 100% financing

VA Loan: 100% financing

The opportunity to buy a home, despite a low credit score, is a dream come true for many homebuyers. At TPG, our Mortgage Advisors are here to make this dream a reality.

Contact us today to learn more.

SECOND HOME FOR COLLEGE STUDENTS

They grow up so fast. It seems like just yesterday they were learning how to crawl, and now your child is packing up for college. With all the overwhelming emotions you must be feeling, there’s no doubt you’re also feeling the sticker shock of paying for their education. From tuition and books to parking passes and meal plans, college is a pricey investment.

There are some costs that are just unavoidable, but there is one area of spending that could create long-term wealth for both you and your student. Have you considered buying a second home for your college student?

Before you panic at the thought of a second mortgage, let’s look at the long-term benefits of a second home, rather than paying for university housing.

Investment Strategy

When it comes to planning for your future (and your child’s) it never hurts to have a backup plan. By investing in a different market of real estate, outside of your primary residence, you have the potential to increase your investments. Owning a second home also opens up the options for your living situation after retirement.

Owning, rather than renting, a home will also allow the home to build equity. MyCollegeGuide recently said students at public universities can expect to pay an average of $8,887 each year for room and board, and those at private universities are likely to pay closer to $10,089 per year. Why not put this money toward a home that has the potential to keep making money, long after your student moves out?

Tax Benefits

As long as you use the property as a second home, and do not rent it out, you can deduct mortgage interest the same way you do on your primary residence. As a homeowner, you can deduct up to 100% of the interest you pay up to $750,000 of the total debt that is secured by both the primary home and the second home. (Note: $750,000 is the total debt between the two houses, not $750,000 each.)

When deciding on whether or not to rent out your property to another individual for the time you’re not using it, speak with a financial advisorCertain tax breaks will or will not apply, based on your specific situation.

Appreciation

College towns are perfect for property appreciation. Because new students will always be moving through, homes in the area will always be in high demand. Even after your college-aged kid moves out, you could consider renting it out to other students. Or, if you have multiple kids going to the same school, rent the property out during the years it’s being unused. (If you do this, be aware of how it will affect your taxes.)

Stability

Avoid the stress of finding a new living space each year by owning a home your child can live in for all four years of college. No move-in dates, security deposits, or storage fees.

Additional Tips

If you’re considering purchasing a second home, rather than paying sky-high prices for university housing, consider these additional tips: 

Remember all the expenses. Taking care of a home is an expensive task. From lawn care to appliance upkeep, you’ll need to factor in all of the costs of buying the home, besides just the mortgage.

Look in advance. Even if your kids are a few years away from picking a college, consider the benefits of different markets. Buying a home in one state versus another might be a deal-breaker. You’ll also need to be in good financial standing when you apply for a home loan. (Know your loan options.)

Understand scholarship requirements. If your child is awarded a scholarship through the university, living on-campus might be a requirement. Consider all the possibilities with your child in advance and stay on top of potential requirements. (Some universities will require freshman to also live on campus, no matter what.)

Help your child establish credit. If you decide to have your soon-to-be-student listed on the mortgage and deed, they will need to have some established credit before applying. Consider applying for a low-limit credit card in the student’s name or have a small car loan in their name to help with their credit rating.

Do you have more questions? Give our team of loan experts a call. 520-495-0222

How To Win A Multiple Offer Situation

How To Win A Multiple Offer Situation

The real estate market is hot right now, and the competition for homes is rising with little inventory to satisfy the demand. Homes are being sold with multiple offers on the table within days, and even hours, after listing. This may be ideal for sellers, but for buyers, this could mean trouble if they don’t have a skillful real estate and lending team representing them to snatch the perfect home.

Get Pre-Approved!

Make sure your borrower is in the strongest financial position possible; in today’s market, you’re going to need every card on the table. This means your client’s financing decision needs to be strategic. You need a lender who will match your client with financing that puts them in the best bargaining position possible. Get a pre-approval in hand so your client can shop with confidence.

Understand the Seller.

Find out what the seller’s experience has been like so far. If they have placed the house on the market several times only to have the deal fall through, your client can use this to their advantage by differentiating themselves from previous and current prospective buyers.

Stand Out with a Powerful Introduction Letter.

This will humanize your client and their situation to the seller. Let’s say your client can’t beat the best offer, but they can at least match it. That is when a humanizing touch can be enough to sway things in your favor. Help your clients craft a letter that tells their story; you want the seller to feel like your clients deserve the house.

Be Flexible.

Counsel your client on flexibility whenever possible. Be ready to yield to the seller’s desires, from the close date, to concessions, to who will pay for minor repairs. The more ideal and uncomplicated you make the offer, the easier it is to choose you over the next guy.

Have a Lender Who Won’t Let You Down.

Let’s say you do manage to get the offer accepted. Congratulations! But now is the most crucial part; delivering on those promises. If your lender fails to meet deadlines, doesn’t communicate proactively, or worse, didn’t really pre-qualify the client, your reputation could take a serious blow. Help your client choose a lender who makes you look good. Allow us to be that trusted partner!

If you have questions about how to get your client pre-approved with a lender you can trust, please feel free to reach out to The Polder Group at Summit Funding at your earliest convenience. We would love to work with you!

Fannie Mae and the new Trended Credit, what it means for you

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Recently, Fannie Mae, one of the main guarantor’s of conforming mortgages, enhanced its underwriting system, Desktop Underwriter. This new version, Desktop Underwriter 10.0, analyzes a borrower’s credit using a new tool called “trended credit”. It requires trended credit data to be taken into consideration when underwriting a single-family mortgage transaction. Desktop Underwriter’s evaluation is fair and impartial, applying the same criteria to every mortgage loan application considered.

What is Trended Credit Data?

Trended credit data is a deeper view of the borrower’s credit history. It provides lenders with a 24-month history of a borrower’s credit payments including balance, credit limit, scheduled payment and actual payment. This helps lenders determine whether a potential borrower will be high or low credit risk, based on how they already manage their lines of credit.

An individual who pays more than their minimum payments on their monthly debt is more likely to be a “lower risk” than someone who only makes the minimum monthly payments.

Trended data has been used by credit card and finance companies for years but until now, it has not been widely used in the mortgage industry.

Trended data will only be used with conforming Fannie Mae loans at this time.

What are the benefits of Trended Credit Data?

The new enhancement will help creditworthy borrowers to gain access to mortgage credit and lasting homeownership. It will benefit borrowers who regularly pay off their revolving debt, increasing the possibility of being approved by the Desktop Underwriter 10.0. Those who would have barely missed the minimum requirements may now be approved.

We are always happy to bring you the latest news on the mortgage industry to keep you and your client’s informed. If you have any questions on how this might affect you and your clients, please give The Polder Group a call today. We would love to hear from you.

Whether Your Client Is Buying Or Selling A Home

Whether your client is buying or selling a home, the appraisal is an essential step in the transaction, so it’s important to set realistic timeline expectations. Summer is a very popular time of the year to buy or sell a home, with the sheer number of appraisals being ordered it is creating increased appraisal timelines and possibly higher “rush” prices.

Who controls the appraisal due date?

Mortgage banks set the due date for the appraisal, but this doesn’t mean the date will necessarily be met. Often, the original date must be modified, which in turn, will delay the actual closing date.

The closing date can sometimes be unintentionally delayed by the real estate agent and homeowner if they do not return the appraiser’s request for an appointment in a timely manner. We understand that a homeowner may believe that in order to increase the value of their home, the entire house must be spotless and may cancel an inspection in order to get the cleaning done. But right now, appraisers are so busy that if that one opportunity is missed to schedule an appraisal, they will fill that slot with other appointments.

How long does an appraisal take?

Everyone in the industry is currently at the mercy of the appraiser’s schedule. In the past, appraisers could perform as many as four inspections in a day. Add an additional day for writing the report and the appraisal could be completed within two or three days. Unfortunately, with today’s complex regulations and requests for additional information, this time has been stretched to up to a two to three weeks from the time of inspection to the completed report. For commercial properties, this time frame can extend to a month or more.

There is also a shortage of experienced appraisers and they are all overloaded with work. A borrower can put a rush on their appraisal costing upwards of an extra $200-300, but when there is a rush on every appraisal, the prices for a timely appraisal can get even steeper. Warn your clients that this is a possibility, but ensure them that we will all be doing our best to get them into their home as soon as possible.

How should you prepare your client?

At the beginning of the sales process, discuss the appraisal process with your client so there are no surprises. Be honest with your client about possible appraisal turn times and the costs associated with a rush order. And let them know that a spotless house won’t sway an appraiser to increase the home value.

All lenders are experiencing the same delays this summer so it’s extremely important to set realistic expectations with your client to ensure they understand how important it is to accommodate the appraiser’s schedule in order to close their financial transaction.

We are always here to help you foster your client relationships; providing top notch customer service. Call, Text or Email “The Polder Group” (520) 495-0222