Saturday, May 5, 2007

Credit Scores and Mortgage Rates

From's Elizabeth Razzi:

Each of the three major credit bureaus, Equifax, Experian and TransUnion, collects data from your lenders about your history of borrowing and paying back credit. They compile that information into your credit report, which any lender can access whenever you apply for a loan. The Fair Isaac Corp. is the major producer of credit scores. They take the information from those credit reports, apply their own trade-secret formula and, based on the three credit reports, distill three credit scores for you into one score ranging from 300 to 850.

A new credit scoring system has been developed by the three major credit bureaus -- the VantageScore. Their VantageScore reports are available for $5.95 each, a fraction of the cost of the FICO score. However, the scores are not a direct substitute for each other and mortgage lenders continue to look at FICO scores when reviewing mortgage applications, so they are the scores a mortgage borrower should buy.

Borrowers with high FICO scores -- the top tier ranges between 760 and 850 -- can expect lenders to offer them lower interest rates and more loan choices. Scores of 620 or lower usually place a borrower in the "subprime" category, and they can expect to be quoted significantly higher interest rates and may be offered fewer varieties of loans. A FICO score of about 500-520 is generally the minimum that will qualify for a mortgage.

Fair Isaac’s consumer Web site offers a chart that is updated regularly and shows how your FICO score can affect your interest rate.

For example, here’s what a borrower could have expected to be charged in interest for a $300,000 30-year fixed rate mortgage, based on his credit score, according to March 2007 interest rates:

760-850 tier5.780%
700-759 tier6.002%
660-699 tier6.286%
620-659 tier7.096%
580-619 tier8.583%
500-579 tier9.494%

Such variations in interest rate can add hundreds of dollars to your monthly payment and can make a big difference in the amount of debt for which you can be qualified.

Factors beyond credit scores

While scores are important, they are not the only thing lenders take into consideration when approving a mortgage. And low scores aren’t insurmountable obstacles, says David Reed, an Austin, Texas-based mortgage broker and author of "Mortgage Confidential: What You Need to Know That Your Lender Won’t Tell You."

"The FICO is one of the factors, not the only one."

Other "offsetting factors" can balance a low credit score, such as a large down payment, large cash reserves or an overall low debt-to-income ratio, says Reed. The important thing is that borrowers not assume they can’t get a mortgage because of a low credit score, or that they limit their loan search to lenders that specialize in loans to people with troubled credit.

"From a credit standpoint, the biggest thing people can do to harm themselves is to prejudge their situation because they thought they wouldn’t qualify," says Reed.

He recommends looking for a lender who does not charge a fee just to take your application and qualify you for a loan. "There are plenty of other lenders out there who will do that as a customer service," he says.

Scrutinize your credit reports

Of course, you need to make sure that your credit score is the one you’ve truly earned. If there are mistakes on your credit reports, they will translate into lower scores.

At least six months before you intend to apply for a loan, get updated copies of your credit reports from Experian, Equifax and TransUnion, plus a copy of your FICO score. All borrowers are entitled to one free copy of each credit report annually through the Web site. Through the Web site, Fair Isaac charges $47.85 for the three reports plus their FICO scores that are based on those reports. The budget-minded might opt for the $15.95 choice, for one of their credit reports and a single FICO score. If you spot problems, you can always go back and order the other two individually without spending more than their three-report package.

Review each of your credit reports for errors. Sometimes other people’s credit information can mistakenly make its way to your credit report.

Common names and family members’ information can show up where they don’t belong. There also can be errors about your payment history -- such as a notation of a missed payment when you can prove that you actually paid the bill.

Contact the lender involved with the error to straighten out the record. Normally it can take months for that information to make its way into your FICO score, according to Craig Watts, public affairs manager for Fair Isaac Corp. But if you’re already in the mortgage application process, your lender can request that the credit report companies do a "rapid rescoring" of your credit and have such errors corrected within 72 hours, he says. Lenders pay the credit bureaus for that service.

Bump up your score

You also can improve your FICO score by paying down outstanding balances on your credit cards, says Watts.

"If you’re only interested in improving your FICO score, you should start with accounts that are closest to the credit limits." Even if you never miss a payment, borrowing a large percentage of the credit that is available to you hurts your credit score.

Financial advisers usually recommend paying off the credit lines that have the highest interest rates first, and Watts recommends that approach if you also use the interest savings to pay down your closest-to-the-limit debts.

Don’t close any accounts

What you should not do in hopes of boosting your credit score is close any credit accounts.

"Closing an account will never improve a FICO score, and in some cases it can inflict harm on a credit score," says Watts. That’s because, if you’ve closed one or two credit accounts, but not reduced your overall borrowing, you’ve boosted your ratio of indebtedness compared to the total amount of credit available.

Lenders prefer to see that you have lots of credit available -- but relatively little of it actually borrowed.

Saturday, April 7, 2007

*NEW* Washington Mutual Standalone 2nd/HELOC: An Excellent Product!

Washington Mutual's new product: the standalone second/home equity line of credit (HELOC) is a no-cost (in most cases), low variable rate Home equity line of credit (can be combined with ANY existing first loans: including non-Washington Mutual ones--even neg-ams are OK: with no gross-ups whatsoever!) with a fixed rate (including interest-only!) option, allowing you to move between fixed and variable rates at any time! Get your needed cash now (for making home improvements or investments) or peace of mind of having insurance/emergency cash for the future (in case of unexpected tough times such as job loss or other contingencies)!

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Wednesday, April 4, 2007

Check Out These *Hot* Bay Area Foreclosure Listings!

As you know, foreclosures are on the rise. Check out these new bank REOs in Santa Clara County, CA (prices are negotiable with the banks--100% financing possible!):

  • 159XX QUAIL HILL RD, LOS GATOS, Lot 43124 sq ft, House 2362 sq ft, 3 Bed, 2.5 Ba
  • 13XX ELKWOOD DR, MILPITAS, Lot 3049 sq ft, House 1867 sq ft, 4 Bed, 2.5 Ba
  • 2XX DEL MONTE LN, MORGAN HILL, Lot 2614 sq ft, House 1720 sq ft, 3 Bed, 2.5 Ba
  • 19XX MOUNT VERNON CT, MOUNTAIN VIEW, Lot 2178 sq ft, House 1169 sq ft, 2 Bed, 2 Ba
  • 2XX VISTA ROMA WAY, SAN JOSE, Lot 3049 sq ft, House 1674 sq ft, 3 Bed, 2.5 Ba
  • 2XX WESTRIDGE DR, SANTA CLARA, Lot 6098 sq ft, House 1234 sq ft, 3 Bed, 2 Ba
  • 124XX SARATOGA AVE, SARATOGA, Lot 14375 sq ft, House 1880 sq ft, 3 Bed, 2.5 Ba
  • 5XX E ARBOR AVE, SUNNYVALE, Lot 4792 sq ft, House 1009 sq ft, 3 Bed, 1 Ba

To find out more about these properties (and others–there are many more!), please contact Bishop Lending/All State Homes.