Understanding how credit affects your client s ability to purchase. Course number E1868

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1 Understanding how credit affects your client s ability to purchase Course number E1868

Renee Duval NMLS#96967 Certified Mortgage

2 Renee Duval NMLS#96967 Certified Mortgage Professional NH Mortgage Bankers & Brokers Association This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. NMLS ID #2561

3 an electronic record of your credit activities. is a record of how you use credit and how much of it you have available. Mortgage report contains merged data from 3 credit bureaus

4 Credit Bureaus Equifax Experian Trans Union Credit Services Birchwood 30 Nationally

5 Provided by a Credit Service Merges Data from 3 bureaus Temporary File Can be amended/updated Updated prior to closing

6 Mathematical Model A credit score is a number that represents the statistical probability of you becoming delinquent on loans extended to you. A comparison to the patterns in millions of past credit reports Snapshot in time

7 We have come to rely on credit scores more in the last 10 years than ever before. Credit now effects, your employment, utilities, insurance, as well as auto and home purchases. Fair Isaac Company (FICO) Was developed in 1956 Went public in 1986 Is the standard by which all other credit scoring models have been developed This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

8 The first purpose of the FICO score is to determine likeliness for a 90 days late payment in the first 24 months of the loan Second purpose to determine level of risk Low Risk * Medium-Low Risk * Medium Risk * Medium-High Risk *620 and Below High Risk

9 800 or higher 18.4% % % % % % % 499 and under 6% According to fico.com as of Oct 2012

13 Fair Credit Reporting Act 1971 Established guidelines for accuracy of reporting and protect privacy of consumers. FACTA of Free Credit report per bureau per year Further protections for consumer in light of concerns about Identify Theft Annualcreditreport.com Credit Karma & FreeCreditReport.com This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

14 This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

15 Paying debt on time increases score Late payments, judgments, and charge offs, all have negative impact on scores. Most recent 24 months = Most Weight The more recent, the greater the impact This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

16 Weight by Year 40% = current to 12 months 30% = months 20% = months 10% = 37+ months This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

17 A major delinquency in past year = 93% negative impact a major delinquency between 1-2 years = 60% a major delinquency between 2-3 years = 44% a 3-4 year old delinquency = 33% older than 4 years = 22% negative impact. Over 7 years should be removed from report/no impact This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

18 30 days late no more than 3 in last 12 months 60 days late no more than 1 in last 12 months 90 days late none in last 6 months no more than in past days late none in past 12 months

19 Utilization The ratio between the balance and the high credit limit. Balance/Credit Limit (What are the 2 ways to reduce this ratio?) This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

20 Utilization Over the credit limit loses big pts Over 50% of credit limit loses pts Under 50% of credit limit gains pts Ideal is low balances (under 30%) This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

21 Length of time the borrower has had credit. A seasoned borrower will be stronger in this area of credit scoring. New Credit = shorter history This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

22 A mix of Installment loans (auto, student loans ) and revolving credit (credit cards) has the most positive affect on the credit score. Having only 1 type of credit can actually bring the score down. Avoid using finance companies This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. VISA/MC/Discover National Cards

23 This is the part of the score that quantifies the number of inquiries in the last 12 months. Inquiries can reduce scores Hard inquiries can cost up to 3-10 points! credit cards loans auto/student loans/secured/personal mortgage Soft pulls have no effect on score Insurance Employment Utilities Consumer pulls This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

24 Inquiries = lower score Recent = more impact Multiple pulls for mortgage = OK A buyer should not inquire into new credit while considering home ownership. This is not an offer to extend credit o r intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

25 Interest rates are based credit scores Loan Level Pricing Lower Score = Higher Rate Higher Rate = Lower Sales This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

26 FHA K -620 RD 620 VA 620 NHHFA 620 Conventional 620 These credit score minimums are attributed to MMC investor requirements, there may be other institutions that will accept scores lower than indicated above.

27 Score Rate APR 740 5% 5.25% % 5.375% % 5.5% % 5.75% % 5.875% This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. Based on a $300,000 sales price with 20% down payment $240,000 conventional loan with 30-year term. This is a hypothetical example for demonstrations purposes

28 Score For a Fixed Rate Points Paid to Get Rate % $ % 1% $2, $2, % $7, % $8, Score does not meet minimum program requirements This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. Based on a 5% down payment loan, $285,000 loan

29 For a Fixed Rate Score MI Rate Monthly Mortg Ins Payment $ $ $ $ Score does not meet minimum program requirements Rates came from United Guarantee Mortgage Insurance Company Based on a $300,000 sales price & 5% down payment - $285,000 loan

30 $200K sales price - $4800 taxes Seller pays $8500 toward closing FHA Buyer Assumes NH Housing cash assistance of 3% given toward down payment 600 Credit Score 620 Credit Score

31 $6000 X43% =$ =$1380 max housing Qualifies for $150K $175K Depending on taxes 600 credit score $6000 X55% =$ =$2500 max housing Qualifies for max FHA $280,000 sales price 271,050 in Merrimack County 620+ score & accept findings

32 Over 80% of Clients have the potential to increase their credit scores within 30 days!

35 Deleting Inaccurate Info May Sept Borrower now eligible for FHA

36 Deleting Old Negative Info

37 The ideal credit report 3 or more open lines of credit with no late payments in the past 24 months Balances on credit cards below 50% of limit This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. No unpaid collection debt

38 Are there any accounts that do not belong to the borrower? Are there any duplicate accounts? Are any of the account references outdated? Are any of the account histories inaccurate? Are any monthly payments shown incorrectly? Are there any inquiries within the last six months? Are there any new accounts within the last 60 days? Is the current mortgage reference up to date? This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval

39 Other considerations Rental history Payment shock Checking & Savings history This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

Automated underwriting LP loan prospector DU desktop underwriter DO desktop originator FHA score card GUS Guaranteed Underwriting System This is

40 Automated underwriting LP loan prospector DU desktop underwriter DO desktop originator FHA score card GUS Guaranteed Underwriting System This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

41 25% of credit reports contain serious errors 79% of credit reports contain errors 54% contain incorrect personal information 30% contain credit accounts that had closed by the consumer but incorrectly remain listed as open This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

42 How do I dispute an error on my credit report? Answer: contact both the credit reporting agency/agencies and the company that provided the information. Step 1: Dispute the information with the credit reporting agencies (TU, Equifax or Experian) Step 2: Dispute the information with the company that provided the information.

43 Disputing the information with the credit reporting agencies (TU, Equifax or Experian) Have the credit report in hand when you start Identify which bureau is reporting the information Identify how they are reporting it Spelling of the creditor s name must match your dispute Account # must match your dispute

44 Each bureau has a dispute form you can download Write your own the letter Provide enough information to identify yourself Be specific in identifying the disputed accounts Provide Additional Information Include a copy of your credit report with the disputed items marked or circled. Include supporting documentation when available Include a copy of your driver s license Include a copy of a utility bill Other Consider sending with return receipt requested Keep copies of everything for your records

45 If mailing consider sending with return receipt requested Keep copies of everything for your records Request confirmation the error has been removed There is no charge for submitting a dispute It is your right to dispute inaccurate information The agency has 45 days to investigate They must report back to you within 5 days of completing their investigation

47 CFPB provides guidance on writing disputes All companies that report information to credit bureaus must accept disputes from consumers Write and sign the Dispute Letter Mail Dispute Letter with supporting docs Ask for return receipt requested Keep copies of everything They have up to 45 days to research your dispute and then must report back to you

54 A Few Do s and Don ts While you are waiting for your new mortgage Do Not: Obtain any new credit after initial application this includes any debt consolidation Please wait!!! Do Not: Pay off any debt including collections and charge offs Do Not: Make any late payments. Now is the time to be especially careful. Even a single late payment can be devasting. Do Not: Pay your mortgage or rent late. Don t think because you are selling or moving you can roll that last payment over. Do Not: Use deposit cash into your bank accounts or use cash to create the make the deposit check that goes with the sales agreement Do: Notify your lender of anything that could affect your loan approval especially if you change employer Do: Call Merrimack Mortgage at LOAN (5626) Any one of these items may be acceptable case by case, but you should notify your lender in advance of any changes to your financial picture. Carol Jordan Renee Duval Nellie Doughty MNMLS# NMLS# NMLS# This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval. Office (603) 225-LOAN (5626)

55 "The views expressed in this presentation are my own and do not reflect those of my employer, colleagues or its clients "Presentation for Realtor use only, not intended to be distributed to consumers" This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval.

56 Loan Officer speaks with borrower about their income, assets & debt Credit report may be pulled Automated underwriting may occur Paystubs, W2s & tax returns may be reviewed Bank statements may be reviewed Prequal Letter written Loan Officer s opinion Borrower signs application Credit report is obtained automated underwriting is completed Paystubs, W2s in the file Bank statements in file Underwriter reviews Commitment from lender issued Prequalified Preapproved

CONSUMER CREDIT STARTER GUIDE

Atlantic Bay Mortgage Group CONSUMER CREDIT STARTER GUIDE Atlantic Bay Mortgage Group s Consumer Guide To Credit Scores & Home Financing Atlantic Bay Mortgage Is A Mortgage Lender Where The Genuine Care