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| Q&A About Your Credit |
Below are a few common questions about credit scoring. To locate a Stockton Office near you click here.
Why is my credit score important?...and how is my credit score determined?
In a nutshell, credit scoring is a statistical method of assessing the credit risk of a loan applicant. The score is a number that rates the likelihood an individual will pay back a loan.
The score looks at the following items:
- Past delinquencies
- Derogatory payment behavior
- Current level of indebtedness
- Length of credit history
- Types of credit
- How often credit is applied for
- Number of credit inquiries
Once my credit score is established, what now?
Credit scoring will place borrowers in one of three categories.
- First... a borrower with a score above 650 to 675 may be considered an A+ loan. The loan will involve basic underwriting, probably through an "computerized automated underwriting" system and be completed within minutes. Borrowers falling in this category may have a good chance to obtain a lower rate of interest and close their loan within a couple of days.
- Second... a score below 650 but above 620 may indicate lenders will take a closer look at the file in determining potential risks. Borrowers falling in this category may find the process and underwriting time no different than the past. Supplemental credit documentation and letters of explanation may be required by lenders before an underwriting decision is made. Loans within this FICO scoring range may allow borrowers to obtain "A" pricing, but loan closing may still take several days or weeks as it does now.
- Third... borrowers with a score below 620 may find themselves locked out of the best loan rates and terms offered by lenders. Mortgage professionals may divert these borrowers to alternate funding sources other than FNMA and FHLMC. Borrowers may find the loan terms and conditions less attractive than the "A" loans, and it may take some time before a suitable funding source is located.
As more lenders utilize credit scoring, the loan approval and closing will be compressed for most consumers. In the future, a high FICO score may be your ticket to a speedy and competitively priced mortgage loan. What if I find a mistake on my credit file?...and what do I do to correct that mistake?
You have the right, under the Fair Credit Reporting Act, to dispute the completeness and accuracy of information in your credit file. When a credit reporting agency receives a dispute, it must reinvestigate and record the current status of the disputed items within a "reasonable period of time," unless it believes the dispute is "frivolous or irrelevant." If the credit reporting agency cannot verify a disputed item, it must delete it. If your report contains erroneous information, the credit reporting agency must correct it. If an item is incomplete, the credit reporting agency must complete it.
For example, if your file showed that you were late in making payments on accounts, but failed to show that you were no longer delinquent, the credit reporting agency must show that your payments are now current. Or if your file showed an account that belongs only to another person, the credit reporting agency would have to delete it. Also, at your request, the credit reporting agency must send a notice of correction to any report recipient who has checked your file in the past six months.
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| Q&A About Obtaining A Loan |
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One of the first questions you should ask during the home loan process is whether you want a fixed-rate or adjustable-rate mortgage. The best way to arrive at an answer is to determine whether your home is a short-term or long-term investment.
Short-Term Investment
If you plan to own your home for only a few years, generally no more than five years, then an adjustable-rate mortgage is probably the best choice for you.
Features:
The lower rate and payment during the initial years of the mortgage will do two things:
- help you qualify for a larger loan up front and
- save you money over the short term.
If you are on a fixed or limited income, this would not be the most appropriate option for you.
Benefits:
- Lower monthly payments in the initial years
- Rate caps provide protection against unlimited interest rate increases
- Choice of multiple initial fixed-rate periods (6 months, 1 year, 3 years, 5 years and 7 years)
- Loan amounts up to $2 million
- May be used to purchase or refinance a home
- Available for one-to-four unit primary residences, second homes and investment properties
- Low-to-no down payment options
- No mortgage insurance option
- Interest-only payment option
How Adjustable-Rate Mortgages (ARMs) Work
Your mortgage Note will contain a start rate, index, margin, and rate caps. Once your loan has closed, you will begin making monthly payments based on the start rate. After the initial fixed-rate period is over, your new interest rate will be determined by adding the current value of the index to your margin. You are protected against unlimited interest rate, and therefore payment, increases with the periodic and lifetime rate caps. The new interest rate is used to determine your new monthly payment.
Available Programs
- Six-Month ARM
- One-Year ARM
- Hybrid ARMs
- Balloon Mortgages
Six-Month ARM
The six-month ARM interest rate and monthly payment are adjusted every six months from the beginning of the loan term.
One-Year ARM
The one-year ARM interest rate and monthly payment are adjusted every 12 months from the beginning of the loan term.
Hybrid ARMs
Hybrid ARMs combine the security of a fixed-rate mortgage with the savings of an adjustable-rate mortgage. A hybrid ARM has an initial fixed period, for instance three, five or seven years. During this period the interest rate and payment are fixed, making budgeting easy and predictable. After the initial fixed period, the mortgage becomes an ARM with adjustment periods of six months or one year.
For instance, if you chose a 3/1 ARM, your interest rate and payment would be fixed for the first three years and then would adjust every one year. A 7/6 ARM would be fixed for the first seven years and then adjust every six months.
Balloon Mortgages
Balloon mortgages typically have a 30-year term with a balloon payment required after five or seven years. The interest rate and monthly payment is typically lower than a standard fixed rate. This is an excellent choice if you don't plan to be in your home for a long period of time or you expect interest rates to decline over time.
Long-Term Investment
If you plan to own your home for more than five years, then a fixed-rate mortgage may be the better choice for you. This is also the most appropriate choice if you are on a fixed or limited income, or if you prefer not to take the interest-rate risk associated with an adjustable-rate mortgage.
Features:
A fixed interest rate and payment over the life of the loan will do two things:
- provide predictable, fixed monthly payments and
- pay off your mortgage sooner and save on the amount of interest paid with short-term financing.
With a fixed-rate mortgage, you can choose a 15-, 20-, 25-, or 30-year loan term.
Benefits:
- Stable monthly payment
- Avoid interest-rate risk
- Choice of loan terms (15, 20, 25, and 30 years)
- Loan amounts up to $2 million
- Purchase or refinance your home
- Finance one-to-four unit primary residences, second homes and investment properties
- Low-to-no down payment options
- No mortgage insurance option
- Interest-only payment option available with a 30-year loan term
Available Programs
- Conforming Fixed-Rate Mortgages
- Jumbo Fixed-Rate Mortgages
- Low-to-No Down Payment Financing
Conforming Fixed-Rate Mortgages
Conforming loans are those that meet guidelines established by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Interest rates for conforming mortgages are generally less than those for non-conforming, or jumbo, mortgages. Conforming loan limits are as follows:
- One-unit property: $333,700
- Two-unit property: $427,150
- Three-unit property: $516,300
- Four-unit property: $641,650
Jumbo Fixed-Rate Mortgages
Jumbo, or non-conforming, mortgages have loan amounts that exceed the limits established by Fannie Mae and Freddie Mac. Currently, jumbo mortgages have a loan amount in excess of $333,700 for a one-unit property. Please refer to Conforming Fixed-Rate Mortgages for a list of all conforming loan limits.
Low-to-No Down Payment Financing
Two of the largest barriers to homeownership in America are lack of savings and a less-than-perfect credit rating. We offer affordable financing with expanded guidelines to meet most any need.
Benefits:
- Less savings required to purchase a home
- Relaxed credit and income requirements
FHA & VA Loans: If you're looking for a great fixed-rate program with little or no down payment, an FHA or VA may be a smart choice. An FHA loan typically requires just 3% down and eligible veterans can receive 100% financing through the Veterans Administration.
Gift A Home: Gift A Home is a down payment assistance program that allows non-profit gift funds from Home Gift USA for the entire down payment on an FHA mortgage. Unlike most down payment assistance programs, there are no income or geographic restrictions and the program is open to first-time and move-up homebuyers alike.
Community Advantage: The Community Advantage program offers 100% financing on fixed-rate conventional loans up to $333,700. Gifts, grants and loans are acceptable for closing costs and pre-paid items. The maximum household income may not exceed 120% of the area's median income and Homebuyer Education Counseling is required.
Homes for Heroes: This is a 100% financing program specifically for the nation's teachers, firefighters and police force. The homebuyer must contribute the lesser of 1% of the sales price or $500 and the rest of the required funds to close may come from a gift, grant or loan. The maximum household income may not exceed 100% of the area's median income and Homebuyer Education Counseling is required.
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