Improving your credit
Improving your credit score is not as difficult as it may seem. It takes time and know-how. Let me guide you through the steps to:
- Remove false information
- Negotiate with creditors
- Add accounts that will boost your credit scores
- Work with lenders that offer flexible lending programs
- Work around collections, foreclosures, bankruptcies, tax liens. All these issues are considered by lenders but do not necessarily lead to declining a loan application.
Credit bureaus may charge for various services, but I do not charge to help you through the process.
One of the most common questions borrowers ask is "what's the current interest rate." The truth is, there is no one size fits all when it comes to interest rates. Rates are based on six basic issues:
- credit score
- current income vs current debt
- length of employment
- assets for down payment and cash reserves
- value of the property vs loan amount
- personal residence vs investment property
There are many variables to each of these, so nearly anyone will fit within some configuration of them. There are other issues that may affect interest rates based on personal preferences, but these are the basics.
Interest rates move up or down very slowly and by small percentages. A typical average interest rate over the past year for a mortgage is fixed at 4% for 30 years.
The loan application is a universal form used by all lenders in the United States. The basic questions are:
- Name, Social Security number, date of birth, current address, phone number, email address
- Subject property address (new or current for refinance)
- How title will be held
- Employer and employment history
- Assets (accessible funds)
- Liabilities (as listed on credit report)
- Real estate owned
- Questions regarding bankruptcy, co-borrowers, etc
Types of loans
The most common terms for purchase loans are those that require 20% of the purchase price to be paid at closing with a loan amount of 80% of the purchase price to be paid over the 30 year period. However, there are many variations on terms:
- Down payment can be as low as 3.5% with an additional up front and monthly charge for mortgage insurance. These loan programs charge a lower interest rate and are often helpful to first-time home buyers.
- Conventional loans provide programs requiring as little as 5% down payment. There is a monthly charge for mortgage insurance for these loans.
- Down payment and closing costs can be covered by a non-profit down payment assistance organization.
- Payments can be made over a 30, 20, 15, or 10 year period -- the shorter the period, the greater the monthly payment. Some programs have low interest rates for 7, 5, or 3 years, then increase for the remaining term of the loan.
Refinance Loans Cash Out Loans
Refinancing an existing loan can serve multiple beneficial purposes:
- To lower the current interest rate and monthly payment
- To get cash out from the equity to remodel, pay bills, take a vacation, or for emergencies
Most banks will refinance with cash out up to 80% of the current appraised value of your house. For example:
- The current appraised value: $300,000
- Your current loan balance: $200,000
- New refinance loan amount: $240,000 (80% of $300,000)
- Pay off current loan: $200,000
- Cash out to borrower: $40,000
The new payment will be based on the new loan amount of $240,000 plus some closing costs. The new interest rate is determined by the usual criteria for getting a loan (credit score, income, etc).
Reverse Mortgage Loans
In October 2017, new rules for reverse mortgages went into law. They came about with the increase of retirees among baby boomers. Here are some of the regulations for homeowners who wish to take advantage of reverse mortgages:
- Borrower must be 62 or older (including spouse)
- House must have some equity
- Reverse Mortgage Loans are insured and guaranteed by FHA
- Borrowers have options of getting monthly payments for their house, receiving a lump sum for their house, or a combination of the two
- Borrowers own their house until they move out or die, even if the payments from the lender exceed the value of their house.
- Borrowers can sell their house by paying off the amount paid to them by the lender based on the original appraised value when they entered into the reverse mortgage.
- Borrowers can sell their house and buy a new one with a reverse mortgage if they make a 30%-50% down payment. Borrowers get to earn equity on the house but do not have to make house payments or pay taxes on the increased equity.