• Paying your bills on time (Late payments are HUGE credit killers)

• Don’t get in over your head (A good rule of thumb is never use more than 45% of your income on Housing and Transportation expenses combined) This actually has little bearing on your actual credit score, but the implications are obvious, people in over their head tend to get in trouble, have late payments etc.

• Get on a Budget (Like the old saying goes, those that fail to plan, plan to fail) Its hard…I KNOW it is, but this is one of the single greatest indicators of financial success. Those that dont have discipline in their spending rarely have a good credit score for long.

• Use credit as a tool. (It is a means to an end. ALWAYS have your outcome in mind when you use credit. Using it without a purpose is a recipe for disaster) Building a credit score by charging items that you HAVE the cash to pay for, or supplementing cash flow for a business are valid reasons to use a credit card. Christmas spending that you didn’t save up for…is NOT.

Dave Ramsey often refers to credit scores as “I Love Debt Scores” and he is right. He is the prototypical “millionaire next door” meaning despite him having an above average income, he lives below his means, saves money, invests it well, follows a budget and DOES NOT USE CREDIT AT ALL. For this reason, he does not have a credit score.

Credit Cards: Your Best Friend…Your Worst Enemy

This scenario plays out at least 3-4 times a week when I meet with people about getting a home loan.

I ask the borrowers if they know anything about their credit. If it is good they tell me how they ALWAYS pay everything on time and always have since 1982 and they have cut up all their credit cards because they don’t believe in them.

I then pull their credit and they are dismayed to find that they do not have amazing credit scores. They might be average, or low, or non existent.

“WHY!?” they ask.

And I tell them; You don’t believe in Credit cards.

There are essentially two factors that come in to obtaining and maintaining good credit. Depth, and Credit usage. These are my own terminology, and are not actual words used by the credit bureaus or the industry at large per se. I simply use them to illustrate ‘how it works in the real world’.

You see paying your house or car on time every month is OUTSTANDING…when a human looks at your credit. It says you are responsible, it says you care about paying your debts.

On the other hand the mathematical equation used to determine your credit score (called an Algorithm, and typically provided by FICO or Fair Issacs Corporation) looks at this factor with little weight in the over all big picture.

On the other hand, a person with the very same credit profile who also has 3 revolving (read credit cards) lines of credit that had perfect payment histories over a 5 year period, who never carried more than a 30% balance (this number is somewhat debated amongst credit experts and varies from 10-45%) would likely have a much higher credit score.

So in laymans terms…a Credit score is an indicator of who borrows money and pays it back the most often. Or who makes the banks a lot of interest. THEY will have high credit scores.

Why? Because Credit Bureaus are in the business of selling information.

They sell YOUR information to lenders.

Lenders want to know who will make them money.

Credit scores indicate who will make them money.

Thus, having and using credit cards will get you a high credit score.

Lesser Known Facts

Here are some pointers that are not quite so commonly known about obtaining and maintaining a great credit score

• Never use more than 30% of your available credit (It’s a good rule of thumb for your spending, but its crucial for your credit score) There are times when you actually need to “go into debt to go into debt” meaning if you know you are coming up on a large purchase such as a house, refinancing or a car it might be worthwhile to put a balance on your credit card(s). This needs to be done well in advance of applying for the new credit because creditors typically only update once a month. So if you charge your groceries on the 20th, and go apply for credit the next day, it won’t show up and your credit score won’t be affected.

• Open and Maintain 3 revolving lines of credit for 5 years (Often opening a new revolving line of credit for a borrower with zero credit cards will provide an immediate boost to their scores) Having said that, over time they will need two more to establish good credit depth in the eyes of the credit bureaus. The longer this history is reported the better credit scores tend to be.

• Become an Authorized User (This was supposedly done away with, but we have proven it still works with certain companies) The idea comes from a law that was passed in the 1970’s to allow parents to help their kids build up a credit history. Essentially you can take and add your child or spouse (or relative, or…well anyone) and add them as an authorized user to an existing credit card account. Once this information reports to the credit bureau they “piggy back” on your account and your good credit history would report on your report AND theirs. In theory this could allow whoever was added to the account to make charges. However if the card holder provides their own address for the new authorized users card to be delivered to, they can destroy the card and make it impossible for the authorized user to make any charges to the account. For those looking to build a credit history this can be a valuable tool.

• Open an Overdraft Protection Line of Credit Often people who “dont believe in credit cards” will simply refuse to give in, even for the sake of getting better credit scores. If you fall into this category, one option is to apply for an overdraft protection line of credit. Yes it is still technically a credit card. However its purpose is very different. It merely protects you in the event that you ever go beyond your checking account balance. However the bureaus see it as a credit card. This is a great strategy for building a credit score without having to give in to the evil forces of capital one.

• Stay Away From Store Credit Whether its a Jewelery store, Home Depot, Best Buy or Sears…just pass. Not only are the rates and fee’s often exorbitant, even in comparison to some major credit cards, but they are not “created equal” in the eyes of the credit bureaus. For the purposes of building credit stick to good old fashioned credit cards.

• DON’T dispute every single thing on your credit report Often so called credit repair companies will dispute everything on a persons credit that isn’t a perfect account. This can do more harm than good at times. The math behind your credit score is complex to say the least. It is heavily weighted towards the newest items, and as things age they become less important to how your score is calculated. One curiosity is that sometimes removing a negative item from your credit can LOWER your score. One example is a satisfied collection account that was revolving. Odd as it may sound, sometimes these get reported as open and revolving accounts. Losing that history will lower your score.

Following these tips will help anyone get the best rates on any type of loan be it a Mortgage or a Car Loan. Credit is increasingly used in Insurance as well to help determine risk. Not to mention by prospective employers for Job candidates.

We Finance Anyone

But I digress. In recent years since the sub prime melt down, this has started to change. Initially FHA began requiring a minimum 580 FICO score. Many lenders moved their own guidelines to 620, in spite of FHA’s lower mandate. Now, we are seeing many lenders inching towards the 640 mark as a minimum credit score requirement to get a loan.

So what does this mean for anyone looking to buy a home or refinance in Utah?

Well, first you need to know that not ALL lenders are requiring a 640…YET.

We can still help even if you have NO credit score, below a 600 Credit score, and of course if you have great credit we can help you.

What you need to remember is that it is crucial that you are very diligent about protecting your credit rating. If it is good now, make sure it stays that way by following our tips on how to get and keep a great credit score. If you have poor credit but want to buy a home, we are just the guys you want to talk to. We have over 8 years of experience helping people improve their credit so they can buy a home.

Call or Email us today and we will show you how we can over come credit issues and help anyone own a home.

My Friend Justin McHood over at Mortgages Unzipped humorously explained how most people end up choosing a title company when they purchase a home or refinance. In the end the answer is, they rarely do…choose that is.

This is something that has bothered me for a long time, so I wanted to take a moment and clarify REALLY who “GETS” to choose the title company.

YOU DO. The guy paying the charge for the services performed.

Not your Agent

Not your Agent’s Broker

Not your Mortgage Broker/Loan Officer

YOU.

Now having said that, how would you know which one to choose? Lets talk about that for a moment. This is where our discussion becomes about roles. See, sometimes how things ought to be, are often close to how they are…but like my 5th grade teacher used to always say (and I mean always) Close only counts in Horseshoes and Hand Grenades.

He also would say “You want me to turn you into a water buffalo?” Why a Water Buffalo you ask?, “Because a Water Buffalo’s hind quarters are up higher than its ears…after I kick your @** yours will be too”

Yeah, those were the days. When teachers could say that kind of stuff and not have the ACLU and the evening news there an hour later.

So back to how it ought to be. Professionals in the Real Estate industry are trusted advisers. We should know who you would want to use, not because we were “Bamboozled”, but because you will get the very best service you could get, for a reasonable price.

I will add as a disclaimer, that where you obtain title is a negotiable item in a contract. A seller can specify that if you wish to purchase their property you must use the specific title agency that they require. This is perfectly legal, and common when purchasing bank owned properties. However, in any other circumstance it is your right to choose as the buyer or seller. You might even ask your agent, or loan officer why they chose the agency they are recommending. A good loan officer or Agent will have done their homework and will be recommending someone based on Competency, Service, Communication, Efficiency and Speed, and of course price, but not at the expense of the other necessities…the last thing you want when dealing with the most expensive purchase you will ever make is the guy that is the cheapest just because they are the cheapest.

Someone other than my 5th Grade teacher said “The bitterness of poor quality remains long after the sweetness of a low price is forgotten” -Benjamin Franklin

When it comes to a good Title and Escrow officer, I couldn’t agree more with good old Ben.

Now, I’m off to Walmart…I need milk.

One of the most common questions I get when they call to ask about streamlining their FHA loan, is “What’s a streamline?”.

This is great question, and the answer I tell my clients is: “When you hear Streamline think ‘Easier, Cheaper, Faster’”.

The bottom line is this; FHA is giving people the benefit of the doubt since they have already qualified once before for the loan.

SO because of this FHA allows you (Until November 17th 2009) to take advantage of the lowest rates available without having to fully qualify for the loan again. In other words you can skip much of the ‘jumping through hoops’ that happened when you first purchased the home.

These hoops that you skip can include: The appraisal, income documentation such as providing pay stubs, tax returns, bank statements etc., and some lenders even allow you to streamline without providing a credit score.

There are however some restrictions placed on an FHA streamline refinance. Because FHA is giving you the benefit of the doubt and not requiring a new appraisal of the property. You cannot exceed the original loan amount that you borrowed including the Upfront Mortgage Insurance Premium of 1.5% that FHA charges.

Additionally, you cannot remove a borrower from the loan via a streamline refinance. If you need to remove someone from the loan such as in the case of a divorce, the person remaining on the loan must re-qualify for the loan on their income alone.

Be sure to discuss with your Utah Mortgage Lender the different options you have available to you through the FHA Streamline program.

Now I am not a mortgage adviser I actually help people to increase confidence and I also help businesses with cost reduction as well as working on a project about training for foster carers. 

Going back to the previous question; well it is all down to the now infamous credit crunch. These banks and building societies do not have the confidence or capability to start lending out buckets full of cash. Despite the governments of the UK and USA slashing interest rates the market is showing no signs of picking up. It is as if there is some kind of stalemate taking place. Despite lower interest rates the public at large have been amazed and angered at the fact that some mortgage lenders have not passed on the reductions.

For the average man in the street this seems rather unfair. How often does a lender keep their rates unchanged when the Bank of England increases interest rates? Never is the answer, they are very efficient at increasing their rates. In my opinion there should be a rule which states that they have to pass the interest rate reductions on to their customers.

Governments around the world are trying to find a solution to this stalemate; they need to find a way to get the whole lending business moving again. For now people will just have to make do with that they can get, hardly an ideal situation, but that’s just the way it is.

Many people “in the know” believe that the fall in house prices is set to continue for a few more months. I personally believe that the fundamentals are fine but that the credit crunch and the affect that it is having is making it virtually impossible to buy and sell houses. There is likely to be some more bad news to come but within a couple of years the housing market will start to boom as people start to be able to borrow money again.

For some time, there has not been a minimum credit score requirement for Utah FHA streamline refinance loans. Yesterday, it was announced by the last major lender that now they are requiring a minimum of a 620 credit score on all Utah FHA streamline refinance loans. The major announcement came from TB&W that they were moving their minimum credit score requirement to 620 for all Utah FHA streamline mortgage refinances.

Minimum Credit Score Announcement Details

FHA Streamlines (credit and non-credit qualifying) and VA IRRRL’s with Credit Scores below 620 must be LOCKED prior to July 13, 2009 AND must CLOSE (Note Date) no later than September 15, 2009, and must be delivered to TBW within 10 days after closing Loans in this category locked on and after July 13, 2009 will require a minimum FICO of 620.

TB&W will continue to allow non-traditional credit for those borrowers with no useable credit for the loan programs that allow the use of such credit in accordance with published guidelines. TB&W is fully aware that these limitations may result in the inability for a particular loan to meet these specified deadlines. TB&W will work as diligently as possible to accommodate all loans in the pipeline. We will be unable to grant any extensions or exceptions to these requirements.

Utah FHA Streamline Refinance: What Does This Mean?

Although FHA guidelines don’t require a minimum credit score, pretty much all lenders now require that you have at least a 620 score for the Utah FHA streamline refinance loan program. TB&W was the last major US lender who was not requiring that you had at least a 620 minimum credit score in order to participate in the Utah FHA streamline refinance program. It is possible that there are still smaller lenders who can offer the Utah FHA refinance streamline loan with no minimum credit score requirement, but don’t expect it to be easy to find them.

But did you know there may be a better option? Many people are finding that it is possible to do something called an FHA short refinance – which essentially has the same result as a principal reduction loan modification without the fees and time – you end up owing less on your mortgage than your home is worth.

How A FHA Short Refinance Works

An FHA short refinance works much like a short sale – except that you get to keep the house rather than sell it to someone else.

The first step to getting a FHA short refinance done is to get on the phone with your lender and tell them that you are interested in SHORT SELLING your home. Once they hear that, they will usually transfer you to the loss mitigation department – which is the right one.

Once you get to the loss mitigation department, you want to negotiate for something called a SHORT PAYOFF – which means that the lender will agree to accept less than you currently owe. If they say they won’t allow short payoffs, then ask them what they are doing when they accept a SHORT SALE.

No matter what – don’t take NO for an answer! Many times (most of the time) the lender will give you a different answer depending on who you talk to. If you don’t get the answer you want – just try back the next day and speak with someone else.

Once you get the SHORT PAYOFF, then you should be able to get any FHA loan officer to help you get a new FHA loan for that amount – and easier than you can say the words “loan modification”, you will have a new fixed rate FHA loan that is 95% of what your home is now worth.

No matter what, don’t give up! A FHA short refinance can be a much better long term solution than a loan modification. And for many people in Utah – the FHA short refinance is easier, cheaper and better than a loan modification.

Easier. Cheaper. Better.

Excellent!

If you live in Utah and you are interested in refinancing your home under the new Making Home Affordable guidelines, you first had to find out if your loan is owned by Freddie Mac or Fannie Mae – because depending on who your loan is owned by, different rules apply.

Until now!

Yesterday, Freddie Mac announced that they were relaxing their stance on these Obama refinances and will now allow people to use any Freddie Mac lender they choose – whereas before they were required to go with their current lender.

Key highlight of the announcement include:

1. Borrowers can continue to work with their existing servicer to refinance their mortgage. In the vast majority of these cases, the current servicer will not have to re-underwrite the borrower.
2. If the borrower chooses to work with another Freddie Mac-affiliated lender, the mortgage will need to be re-underwritten.
3. Freddie Mac will allow the lesser of 4 percent of the new refinance mortgage amount or $5,000 of closing costs, financing costs and prepaids/escrows to be rolled into the new refinance mortgage.
4. Freddie Mac’s standard post settlement delivery fees, up to a maximum of 2 percent, will apply to the Relief Refinance Program.

According to Freddie Mac Executive Vice President Don Bisenius:

“We are responding to consumers’ desires to have more refinancing options. As an added benefit, we are expanding the program and providing greater flexibility in financing closing costs. Freddie Mac is committed to doing everything we can to bring the benefits of the Administration’s Making Home Affordable program to as many borrowers as possible.”

If your loan is owned by Freddie Mac and you decide to work with a lender other than your current servicer, it will not be as easy as if you work with your current servicer – although as a result of the announcement, it is now possible to do.

Hurry before mortgage rates go up!

See the official Freddie Mac Announcement