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Mortgages That Require a Zero Down Payment

Mortgages That Require a Zero Down Payment

One of the main prohibiting factors from more people being able to buy homes is the issue of the down payment. Yes, even if a consumer has a terrific credit score, a good job that would provide the income necessary to make monthly mortgage payments and the desire to be a homeowner, there’s that all-important issue of the down payment. Putting 20 percent down, as is the case with a conventional mortgage, isn’t feasible for many buyers – and even low down payment options, such as the 3.5 percent that’s the minimum requirement with FHA loans, can be a stretch for cash-strapped consumers.

The good news is that more and more lenders are taking note of these challenges that many consumers face, especially when trying to acquire property in expensive housing areas such as San Francisco, for instance. This post is designed to take a look at some of these zero-down and minimal down payment options that are now available.

Zero Down Payment Mortgages

Perhaps the most common zero-down mortgage is none other than the VA loan. However, the big difference between this type of home loan and others on this list is that in order to qualify for it, you have to either be a veteran or an active-duty service member. VA loan qualifiers will, however, have to pay a funding fee, usually of anywhere from 1.5 to 3.3 percent, which can be rolled into the loan itself. Another popular zero-down military loan is that of which is offered by Navy Federal. However, unlike VA loans, Navy Federal’s funding fee is lower at a constant 1.75 percent.

Here’s a look at some other zero-down home loans:

  • USDA Rural Development Mortgage: As the name implies, the zero-down loan is applicable to buyers that are purchasing qualified properties. But unlike what many may think, these areas that qualify aren’t all considered textbook “rural.” In lieu of a down payment, USDA Rural Development loans require an upfront 2 percent loan guarantee fee and a 0.5 percent annual fee that’s based on the current loan balance. Both can be rolled into the mortgage. One other thing to note about this loan, however, is that it is very popular and funds dedicated to it are known to be depleted well before the end of the year.
  • San Francisco Federal Credit Union POPPYLOAN: Announced in December of 2015, this geographically-specific offering from the San Francisco Federal Credit Union offers zero-down financing on home loans up to $2 million as a means of helping qualified buyers navigate the expensive Bay Area real estate market. In order the qualify for these POPPYLOANs, San Francisco-area buyers must be at least 18 year old and be purchasing a single-family home or condo, or a multi-family home that is intended to serve as their primary residence.
  • BBVA Compass: In February of 2015, BBVA Compass launched its HOME zero-down loan option. HOME, which stands for “home ownership made easier,” is offered only on properties that are in low- to medium-income areas, per Census designation. The HOME loans will also help buyers cover up to $4,500 of their closing costs.
  • NASA Federal Credit Union: NASA Federal Credit Union also offers a zero-down, fixed-rate mortgage that doesn’t require the purchase of private mortgage insurance. It’s available to qualified buyers on either a new home purchase or a refinance on mortgages up to $650,000.

Minimal Down Payment Mortgages

As we noted in the opening, homeownership isn’t so much about what your down payment is – but whether or not you can make the monthly mortgage payments over the course of the 15- or 30-year loan term. But for those that want to put some sort of amount down – even if it is minimal – there are low down payment options available. And several of these options are much less than the 3.5 percent minimum required with an FHA loan and the 3 percent down payments that many other lenders have begun to offer. Here’s a look:

  • Guaranteed Rate: As of July 2016, Guaranteed Rate offers loans with 1 percent down payments to nationwide consumers. The specific mortgage program is known as “Double Match,” and in order to qualify for the program, buyers need to have at least a 680 FICO score and be purchasing a home that is $417,000 or less.
  • Quicken Loans: In late 2015, Quicken Loans debuted a 1 percent down payment mortgage of its own for consumers buying homes (no refinances). To qualify, consumers must hold a credit score of at least 680 and have a debt-to-income ratio of 45 percent or less.
  • United Wholesale Mortgage: Around the same time that Guaranteed Rate introduced its Double Match 1 percent down mortgage, United Wholesale Mortgage came out with a low down payment option of its own. Dubbed an alternative to the 3 percent low down payment mortgages that are becoming increasingly popular, the buyer is only on the hook for a 1 percent down payment, while the lender will pay 2 percent, thereby giving buyers 3 percent equity come closing. To qualify, consumers must have at least a 700 FICO score and a debt-to-income ratio of no greater than 43 percent.

Posted in: Buyer Tips, Credit Repair, Hot Credit & Financial news, Tools & Tips

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How Your Credit Card Issuer Determines Your Credit Limit?

How Your Credit Card Issuer Determines Your Credit Limit?

All credit cards have some sort of a credit limit, which is the maximum amount that you can charge to the respective account before any charges are void. However, this credit limit isn’t information that consumers are typically privy to – unless they apply for the card, that is. That’s largely because before a creditor can issue any sort of a limit, it has to know your credit score as well as other crucial information, like how much money you make, your monthly debt obligations, credit report history and more.

The Rule of Thumb

Just because you won’t get the specifics of your credit limit until you’ve gone through the application process – and become approved – doesn’t mean that you can’t have a general idea of what it’s likely to be. Generally speaking, your credit limit is about double your monthly income, minus any debt obligations you have. So, for instance, if you make $5,000 a month and have debt obligations of $2,000 per month, your credit limit is likely to be in the $6,000 range.

While this is the general rule of thumb, the key word is “general,” as there’s no true universal method and each creditor typically uses their own respective formulas.

Anatomy of the Credit Limit

There’s typically a lot that goes into the credit limit that creditors issue when you apply for a credit card. Here’s a brief overview of what helps make up this limit, aside from your monthly income and debts owed:

  • Credit score: The better your credit score, the less interest you’re likely to pay on purchases. You’re also more likely to have a higher credit limit, as a good credit score shows that you’re a reliable, responsible consumer that can adequately repay any credit card debt. Data shows, for example, that consumers with a FICO score of 720 or greater had an average credit limit of at least $8,000. Conversely, those with FICO scores at or below 620 had a significantly lower limit at an average of $700. So if you want a high limit and your credit score is sub-par, we’d recommend enacting some credit repair best practices prior to applying.
  • Payability: Credit limit is also largely contingent on a consumer’s ability to pay. Noting this, things like debt-to-income ratio, debt-to-asset ratio and consumer income after any debt is paid are all major factors that play into credit card limit.
  • Risk: This factor isn’t so much pertaining to your potential risk as a consumer, but any economic risk based on what’s going on in the world. For instance, during the Great Recession, credit cards were issued with much lower limits than what was issued before and after the economic downturn. Creditors often don’t want to chance a situation where you’ll max out your limit and be unable to repay debt.

It’s also important to note that the credit limit you initially receive should be thought of as more of a starting point. If a creditor sees that you’ve been responsible with your card, you’ll often see your limit increase over time. If the creditor doesn’t do this for you, you can even put in a limit increase request.

Posted in: Buyer Tips, Credit Repair, Hot Credit & Financial news, Tools & Tips

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How Does Your Credit Score Affect Your Mortgage Interest Rate?

How Does Your Credit Score Affect Your Mortgage Interest Rate?

The better your credit score, the better your mortgage rates.

While this rule of thumb is fairly common knowledge, most people are unaware of just how much savings homeowners can experience over the term of a 15- or 30-year fixed-rate mortgage with even the most seemingly marginal difference in interest rate. For example, a mortgage rate of 3.75 percent, compared to a lower 3.5 percent rate, would likely cost a homeowner over $40 more a month – or about $500 more per year. If you multiply $500 by 30, that hypothetical consumer is paying about $15,000 more over the course of a 30-year mortgage than a consumer whose rate is only 0.25 percent less. That’s how big the difference can be between an excellent credit score and just a good credit score.

Yes, your credit score can wind up costing you – or saving you – a lot of long-term money when it comes to your mortgage.

Why Your Credit Score is Key

Would you want to lend money to a friend or family member who has a history of never paying people back? Lenders are in the same boat – and that’s why so much weight is put on your credit score during the mortgage loans application process. A good credit score tells lenders that you’re a responsible, reliable consumer with a track record of making on-time payments. A poor credit score can signify the opposite.

When there’s less risk with a consumer, lenders are more apt to do business with them and approve a loan with a low rate. However, when there’s more perceived risk, lenders throw in the caveat of a higher rate if the particular consumer is even approved for a loan in the first place.

What Are the Best Scores for Conventional Mortgages?

The higher the score, the lower your rate. That said, a FICO score of 720 usually puts consumers in excellent standing where they’re able to qualify for the lowest rates. Between 700-720 is considered good standing, where rates are still favorable, but not as low, and 680 is in the average range where rates are likely to be higher. Anything below 680 and you may be hard-pressed to get approved for a conventional mortgage.

If your score is short of the excellent mark, we’d recommend that you do some credit repair in order to get your score up where you can qualify for a lower rate. Though you may be chomping at the bit to buy a home now, the long-term savings of potentially tens of thousands of dollars can’t be dismissed. Here’s how to improve your credit score:

  • Improve your debt-to-credit ratio: Keep your credit card debt within 30 percent of your total credit limit. Anything higher and your score can take a hit.
  • Make all payments on time.
  • Pull your credit report and analyze it carefully for errors. It’s estimated that over 20 percent of all credit reports have some sort of error. Dispute any that are on your report.
  • Pay off high-interest credit cards before low-interest ones.

Posted in: Buyer Tips, Credit Repair, Finance News, Hot Credit & Financial news, Real Estate News, Tools & Tips

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Black Boxes That Are Credit Scores

Black Boxes That Are Credit Scores

The concept of a black box is actually derived from the science and engineering fields. Specifically, black boxes are defined as something that you can view externally, but have no understanding of how it works internally. The same concept can be applied to credit scores, as many consumers just take note of the three-digit score that they get, yet have no idea of how – and why – it is what it is.

A Google search will quickly provide you with how the FICO score is calculated, but consumer beware – there’s also a lot of misinformation about credit scores and scoring formulas on the Internet as well. You could say that the formula itself behind the credit score isn’t that big of a mystery. The mystery is how that formula is navigated and what parts of it are stressed by the consumer. This post is designed to help you better debunk the black boxes when it comes to credit scores.

Credit Scores In a Nutshell

As you likely know, your credit score is essential to getting approved for a mortgage, auto loan, student loan and more. But what you might not know is that there’s more than just one credit score. In fact, while the FICO score is the most popular, there are dozens of credit scores that lenders may choose from based on the data that is reported to the three major credit bureaus. Because of the various different credit scores, and the fact that new formulas are always coming out, this confuses people. It’s why we encourage consumers to pull their credit report at least once a year and pay more attention to the data – not necessarily the three digit number that they get. Understanding the data is what’s really important when it comes to determining whether or not you have good credit – and how you can improve your credit score.

A Credit Repair Plan

Say you want to buy a home, but your credit isn’t good enough to get approved for a mortgage. Or maybe you want to further elevate your credit score so you can lock in a lower interest rate. That’s where a credit repair plan is necessary, as you need to know what your current score is and how much you need to elevate it to meet your goal. This is the point where the “3 Ups” come into play:

  • Clean Up
  • Build Up
  • Pay Up

Before you can truly put a credit repair plan into place, you need to know why your score is what it is, and make a plan to clean it up accordingly. After this, you need to analyze ways that will allow you to build your credit back up. And then, finally, there’s likely to be debts that you have to pay off in order to get your debt-to-credit ratio to at or below 30 percent to really notice an improvement on your score.

Posted in: Company News, Hot Credit & Financial news, Tools & Tips, Top 10's

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Which Credit Score Do Lenders Actually Use?

Which Credit Score Do Lenders Actually Use?

If you’ve ever applied for a car loan, mortgage or credit card before, then you know that part of the process involves the respective lender checking your credit score. Credit checks are crucial anytime you’re requesting to borrow money, as they help lenders determine whether or not you’re an at-risk consumer. But what you might not know is that there’s more than one credit score that lenders can check to determine your risk. This is largely because there are three main credit bureaus that report your credit information – TransUnion, Equifax and Experior – and each of these bureaus use different models.

So what credit score do lenders actually use? Let’s examine:

The Most Popular Credit Score

According to a report in Fair Isaac, an overwhelming majority – about 90 percent – of the top lenders in the United States use the FICO score to determine consumer risk. But noting this, it’s important to keep certain things in mind when it comes to the FICO score – there are more than 60 different types of it, so one FICO scoring formula may not necessarily come up with the same number as another scoring formula.

The report goes on to state that the most popular FICO score used is FICO Score 8. Mortgage lenders typically use FICO Scores 5, 2 and 4 when determining whether or not to approve a loan. Additionally, one type of credit score to keep an eye on moving forward is the VantageScore, a score that was developed by the three main credit bureaus and currently serves as a competitor to FICO. There’s some speculation that VantageScore will continue to gain traction in the future. VANTAGE 3.0 is the latest score from this family of credit scores.

What’s the Difference Between Scores?

In reality, the scoring formulas are pretty universally similar, but many of the formulas are designed to more closely analyze different things. Typically, the type of lender will depict what type of score – or scores – will be looked at. For instance, an auto lender will want to see data on whether you paid on time and in full when it comes to any past auto loans that were in your name.

With that being said, the issue shouldn’t be so much worrying about what credit score a lender is going to check, but whether your credit is in good shape to begin with. If it’s not, there are a number of credit repair tactics you can enact to get your score where it needs to be, whether you’re looking to get into the range of acceptance on a loan or whether you want to get it into the range that will qualify you for the lowest offered interest rates. Here’s a look at some credit repair tips:

 

  • Pay off high-interest debts first.
  • Keep your debt-to-credit ratio at or below 30 percent.
  • Pay all bills on time and in full.
  • Check your credit report at least once a year to ensure its accuracy. Dispute any inaccuracies accordingly.

 

Posted in: Credit Repair, Credit Scoring Model

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