Financing and Credit Score Frustration


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Having spent the last 19 years of my professional life writing mortgage loan applications, I know the anguish that can result when mortgage applicants learn about items on their credit report which they were either unaware of, or didn’t know the effect these items would have on the mortgage for which they had applied.

That having been said, I’ve enlisted the help of our friends at North Shore Advisory, Inc., the credit reporting analysts and experts in this field to provide you with a few tips, and what I regard as very valuable information on this subject. So here is the following by NSA:

No matter how sophisticated the mortgage applicant, many find credit blemishes that leave them vulnerable, confused, and rejected for financing.

It seems lately we have had an enormous amount of highly successful professionals on the verge of purchasing or refinancing who have been left frustrated, angry, and ultimately turned down for a mortgage due to lowered scores.

Example 1:

Sam and Carol, both successful Attorneys in NYC had been looking for an apartment for well over six months.  They were having difficulty compromising to find a place that met both their needs for practicality, style, neighborhood, and price. After much difficulty they finally found the perfect Manhattan Condo that brought all their qualifications together, while fulfilling their aesthetic dream.

When they first started their apartment hunting both their scores were well over the 740 fico requirement. With combined income of over a million dollars, good assets, and low debt ratio, it seemed like a slam dunk for loan approval. However, due to the length of time since credit was pulled the banker had to run new scores for loan application.

(The updated credit report showed that) Carol’s score dropped to a 652 which meant they would be denied mortgage approval. They were both astounded and angry when they learned that Carol had a tax lien recently updated on her credit which was placed in error dropping her score at least 60 points, as well as a recent late payment on a Bloomingdale’s card.

By the time Carol and Sam found us they had only a week to get the score increased before losing the property. Carol was devastated and felt it was her fault they were going to lose the home of their dreams. 

Example 2:

Jim, a high powered executive, and his wife Susan, an art dealer, were getting ready to refinance the $900,000 that was left on their mortgage. Since their Fico scores were around a 770 their current rate of 5% would be reduced down to around 3%. This would save about $1000 a month and around $300,000 over the life of the loan. 

Throughout the process of refinancing Jim was traveling and took a very long time to get all the documents the banker needed for loan submission. Since so much time had gone by the bank required a new credit report with the application. Unfortunately, when the credit was pulled Jim’s score dropped by 80 points.

Jim had opened two new credit cards not realizing his average age of credit would be reduced by these new born accounts which would drop his scores. He had no way of knowing the two zero percent balance transfer cards would now be costing him $300,000.

Carol and Sam were very lucky and were able to qualify for loan approval. Within a week we had success removing the lien from Carol’s credit profile and her scores went up to 715. With the couples ability to put more funds down and the increase in score they were able to get loan approval.


Unfortunately for Jim and his wife there was nothing anyone could do to help. Once new accounts are opened only time could increase the average age of credit and ultimately the credit scores.

How often could this happen to your clients?  Most individuals do not understand the confusing algorithms and counter intuitive rules of credit scoring.  By the time they realize just how important their credit behavior is, it is usually too late.

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 consumer’s options for a better quality financial life.

Call us with any questions or feedback on credit challenged clients or credit in general!


“Great credit brings great opportunity!!”             Copyright 2012

 


North Shore Advisory, Inc. offers credit repair, restoration, monitoring, and education services. We’ve been providing credit education and credit improvement for almost 25 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 as well as any personal credit scores.
Contact Us:
914-524-8300
Email:
info@northshoreadvisory.com


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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