Deciding on the Mortgage Loan that is Best for You


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Depending on where you are as an informed consumer, you may be aware of the different types of real estate mortgage loans now available on the market. However, being aware that there are a variety of mortgage financing programs and having to decide on one that may be best for your own purposes could be two different things.

It isn’t always easy to decide which type of mortgage loan will be most beneficial to you. All the possibilities opened to you are different and will provide different levels of benefits. So before jumping into a mortgage loan, you want to make sure you have evaluated your individual needs, keeping in mind that the main idea behind a mortgage loan is to help you financially in more than one way.

Let’s take a look at a few of the available mortgage types and an example of what each would mean to you, as well as what you have to bring to the table in order to take advantage of the particular mortgage type.

First is the Traditional or Conventional mortgage. This mortgage type does not require third-party mortgage insurance (e.g. PMI), and comes with the very best rates on the 30 year and 15 year fixed versions. To qualify for this type of mortgage you will need a minimum 20% down payment, great to pristine credit and a stable employment history with and highest qualifying income of all mortgage types listed..

Second is the type of financing known as the PMI (Private Mortgage Insurnce) mortgage. This mortgage type, although having the same qualifying guidelines in terms of credit, employment history and income, does require third-party insurance (thus the title PMI), thereby eliminating the need for a 20% (of the purchase price) down payment, but instead allow you, the borrower, to make a down payment of as little as 5%.

The additional 15% that would otherwise be required on the first mortgage type will be insured by the PMI company on the second mortgage type. The borrower will need everything required for a conventional mortgage loan except the full 20% down payment but will pay an increased monthly fee to cover the PMI premium.

Third is a mortgage loan insured by the Federal Housing Administration and is therefore referred to as a FHA-insured mortgage. Qualification requirements for this type of mortgage are, a “satisfactory” credit profile, minimum down payment of 3.5% (of the purchase price), and 2 consecutive years employment. What you must bring to the table is reasonable explanation(s) for any credit report blemishes, proof of sufficient enough cash to make the purchase as well as enough monthly income to cover mortgage repayments and credit obligations.

Fourth is a VA mortgage. This type of mortgage is guaranteed by the VA (Veterans Administration) and is restricted to veterans of the US Armed Services and their spouses. If you are a veteran and can present a Certificate of Eligibility, a “reasonable” credit profile and stable employment history, you will not be required to make a down payment, but you will have to pay settlement charges (closing costs) to complete your purchase.

The Adjustable Rate Mortgage (ARM) is not separate from Conventional, PMI, FHA and VA, but is an option available to mortgage borrowers qualifying for a mortgage under any of the programs mentioned, but is less popular among FHA and VA borrowers who primarily opt for a fixed term (15 year or 30 year terms) mortgage. There are different variations of the ARM, ranging from a 1 year ARM to a 7 year or 10 year ARM (referred to as a 10 year fixed rate mortgage in some cases).


The initial interest rate on the ARM is usually lower than that of a fixed rate mortgage, but at some point after the first, third, fifth or seventh year that rate will be adjusted to a higher or lower rate, depending on market rates at time of adjustment, but will not exceed the built-in cap for the particular mortgage type.

Once you are aware of the types of mortgage financing available and which will best suit your purposes, you’ll be able to select your home with the confidence in knowing exactly what type of home you want to buy, where you want to buy it and for how much you want to buy it. In fact, you may be able to select a mortgage type based on how long you plan to stay in a particular home. They will be a number of options available to you that did not seem to exist prior to availing yourself of good, usable information.

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Understanding the Vast Business of Scoring



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Today’s post brought to you by North Shore Advisory. Contact information provided at end of post.

At present and in the long term, future scores and credit reports will continue to play a huge part of approvals for financing and the rate paid, as well as leases, real estate purchases, credit card interest rates, insurance, financial tool offers, and so much more. We are even seeing scores that predict our likelihood to purchase goods and services online and whether we will be worth a company reps time on the phone as a potential customer. Scoring thresholds for approvals and better rate offers on loans have become higher while lenders of all kinds depend on scores to evaluate and curb risk making it essential for all of us to understand who creates these scores, where they are offered, and what the variations are.

Most consumers (and even some professionals) when asked, “What score did you pull?” answer “The credit score…you know….Experian and the other bureaus?” Many assume they are all the same or if the scores come from the bureaus those are the ones everyone uses. It is always important to note that there are many scores and each may have a different range. For example, if you pull a Fico score the range is 300-850 and anything above a 740 is excellent. If you pull a Vantage score the range is 501-990 and it has letter grades A-F. If your Vantage Score is a 740 it does not mean you have excellent credit. This is just one comparison of two scores.

Most consumers think all scores come from the bureaus which is also false. Fico created the first scores for lenders to evaluate risk. When banks found themselves getting sued for discrimination due to underwriters (bank employees) being the sole authority for rejecting applicants, the demand for a score to use as an indicator of risk became prevalent. This was a way for the focus to come off the banks when consumers were rejected. Fico is and always has been a separate company from Experian, Trans Union, and Equifax. The Fico scores used by lenders are scores created by Fico for the purpose of each bureau to sell to lenders. The bureaus use their Fico version score formula for lenders to evaluate the information the bureau compiled on a specific consumer in the form of a number. The lenders pay a fee to the bureau for this service. Equifax and the other bureaus pay Fico a royalty when using the Fico formula created for them. Equifax, Experian, and Trans Union did not create any Fico scores and they are not Fico.

There are many models of the Fico Scores made specifically for Experian, Trans Union, and Equifax and each bureau has separate names for their versions:

Equifax has Beacon 09, 05, & 96 or you might see these same versions displayed on the report as Beacon 5.0 and 9.0 as well. There is also Pinnacle 1.0 & 2.0 which is Equifax Fico next generation.

Trans Union Fico scores are called Fico Risk Score Classic 08, 98, or 04. There is also Fico risk score Next Gen. The old name of the Trans Union Fico score was Empirica.

Experian has the Fico Risk Model 08, V2, V3 and Fico Advanced Risk Score 1.0 & 2.0. Experian use to call its score Fair Isaac Risk Score.

Although some of these scores are outdated they may still be used by banks. You can find the name of the model used to the left, right, or above of the score itself on a merged credit report.

Besides Fico scores, there are hundreds of other scores created by each bureau and sold for many purposes to lenders, insurance companies, credit card companies, landlords, finance companies, telecommunication companies, and much more. There are scores that decipher which consumers might be more likely to default on a mortgage already extended, scores that give insight into which consumers should be offered lower interest plus higher limit credit cards. Some scores even predict those who are more likely to go into strategic default on a mortgage loan. There are even global scores used by large corporations doing business internationally.

Just to give you a glimpse into varied scores here is a list of just a small portion of scores that one of the bureaus offers for sale:

In the Market Models

  • Income Insight
  • TAPS
  • National Risk Model-National Equivalency Score
  • Decision Insight
  • Credit Migration Solutions
  • Collect Score
  • Auto Risk Model
  • Bankruptcy Watch
  • Retail Risk Score

These are 10 of 100’s of scores offered by bureaus to corporations as a tool to help identify consumers and existing customers that will bring more profits as well as those that will deliver potential loss.

When we think of credit scores we think of consumer scores used to evaluate risk for mortgages and those that we as consumers buy online. But understanding the vast business of scoring can help us with the big picture. Since we are all being evaluated and watched through these algorithms it helps to get a clearer view of how they work within the corporations that use them.


Feel free to call us with any questions or feedback on credit challenged clients or credit in general!

Making sure credit is analyzed with future financial goals in mind is a MUST before taking an action that can foil those plans and limit a consumers options for a better quality financial life.

“Great credit brings great opportunity!!” Copyright 2012

North Shore Advisory, Inc. offers credit repair, restoration, and education services. We’ve been providing credit education and credit improvement for more than 20 years. For bankers and realtors we can review your clients’ credit reports and scores to see if we can improve them.

We can help you with your business credit needs or personal FICO scores.

Contact Us:
914-524-8300
Email:
Info@NorthshoreAdvisory.com

Residential Real Estate Basics – The Home Buyers Guide


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Buying real estate is considered one of the biggest and most important investments made by most people. Investing in a home or rental property carries a price tag in the tens of thousands of dollars – and in many cases – the hundreds of thousands of dallars, unlike an auto, piece of furniture, tools or anything else except one’s retirement fund. It is for this reason that the real estate investor must be prepared to make good buying decisions.

But, you may ask, how do I make good buying decisions relevant to real estate property if I have no knowledge of, or experience in that field? And this is a great question and a very legitimate concern shared by a majority of first time home buyers and even some seasoned homeowners. There are probably a number of practical ways to answer this question while addressing these concerns, but having a guide – which we’ll call The Home Buyer’s Guide – to which you can refer may be the easiest to work with.

So please consider certain important steps to be taken when you’ve made the decision to purchase a home, and are therefore on the verge of making your first appointment to view homes, but haven’t yet walked into a real estate agent’s office or made contact with a home seller. Although you are very close to making that first home-viewing appointment, it will do a world of good to take a step back and put it off a little bit longer while you do some home buying preparations per… The Home Buyer’s Guide:

A) Preliminaries

1 – Contact the 3 credit bureaus (namely Equifax, Experian, Trans Union) and request your Credit Report. This should be free of charge and it will show you what is in your credit profile. Having this information will help you eliminate any unpleasant surprises after deciding on a suitable home.

2 – While you’re awaiting the Credit Report, gather your Employment and Financial Documents (namely Last 2 Years W2 Forms and Last 30 Days of Paystubs, as well as Last 2 Months of Bank Statements), and make sure you can explain any large deposits (usually $1,000 or over) that are not job related.

3 – Your down payment will range from 3.5% to 20% of the home’s appraised value (not the seller’s asking price, two figures that are invariable different). Make sure that the money which you set aside for this purchase is well seasoned (meaning that it existed in your account for at least 3 months prior to using it for the earnest deposit and/or down payment.

4 – If you have children, schools will be one of the important considerations in deciding on your new home, so you’ll need to do some extra work to determine what schools are where. You can do this by contacting the school board and requesting this information.

5 – Once you have completed the above steps, and before you contact a home seller or real estate broker, you may wish to contact a mortgage lender to request a pre-qualification analysis and/or pre-approval based on your income, credit and financial information. This step will enhance your “qualified buyer” status in the eyes of the home seller, and perhaps strengthen your negotiation position.

B) RWAB – Ready, Willing and Able to Buy.

1 – Everyone who contemplates buying a home is not necessarily a qualified home buyer. Only when you are Ready, Willing and Able to Buy, as determined by your lender and the down payment or earnest deposit you placed in escrow and your signature on a contract of sale/purchase agreement makes you a qualified buyer. But the preliminary work you would have already done (the above steps) satisfies many of your own questions in this regard.


2 – To purchase through a Real Estate Broker/Agent or not to, is a question many would-be home buyers contemplate because they think that dealing directly with the home seller will help them to get the home at a reduced price (namely a price minus the broker’s commission). Keep in mind, however, that a home seller who is selling without an agent is most likely trying ALSO to eliminate the real estate broker’s commission and keep the money for him/herself. When you both want to cut the agent out, someone usually ends up losing.

3 – You may need to hire a Real Estate Attorney, depending on where (what state) you are making the home purchase. Most home buyers seem to feel more secure (or comfortable, if you will) when they are represented by a lawyer. If you are purchasing real estate in New York, New Jersey or any of the Northeastern states you’re going to need a lawyer. In some Southern states, you need only an escrow agent (title company) and maybe a real estate broker. Part of the attorney’s job is reviewing the contract of sale to make sure it’s legal as well as protective of your rights.

4 – Be prepared to complete a mortgage loan application for, and pay an appraisal, credit report and possibly an application fee to the lender you select to borrow mortgage money from. Keep in mind that these fees are NOT Refundable once the work is done. However, you may request (or insist upon) a copy of the Property Appraisal Report for your own records, but also to refer to because that report will determine how much you may end up paying for the home AND how much your down payment will eventually be.

5 – One of the most important reports you will need as a home buyer is a Title Report. This report consists of a history of the property you are buying. It’s a chronological account of everything that ever happened to or affected that property since it was constructed, including what is referred to as a “chain of title”. The chain of title is like a string of owners of the property and should be intact (unbroken) at the time you assume ownership.

C) Ownership – Your Piece of the Rock

6 – Title Insurance can be obtained from the same company that issues the Title Report. This type of insurance protects your ownership of the property you’ve purchased, but it also protects the lender’s interest in your property by insuring the new mortgage which you gave to the lender in exchange for the funds you borrowed to complete your home purchase.

7 – Proof of ownership comes in the form of a Deed. In most cases this is a Bargain and Sale Deed with a Warranty against Grantor’s Acts. The important thing is that, after all you’ve gone through in preparation, pre-qualification, pre-approval and selection of, and the process of buying your home, you now have a Deed, which by all established real estate norms, makes YOU the proud owner fo your very own home.