Well you were able to read up on the first 5 most used terms within lending now it's time for part 2! As we found before loan terms can be very confusing and very much overwhelming. It is my goal to help you understand what they all mean. If I do not touch on all the lending terms that you are trying to understand feel free to leave a comment with whatever term you do not understand and I will update with the definition.
1. FHA - Federal Housing Authority - The Federal Housing Authority is a federal entity that governs the FHA mortgages, which allow for lower down payments and more flexible credit and qualifying guidelines.
2. VA Loan - A VA loan is a loan in the United States that is guaranteed by the U.S. Department of Veterans Affairs. VA Loans, like FHA, have lower qualifying guidelines and lower down payment reqirements.
3. USDA - Department of Agriculture: the federal department that administers programs that provide services to farmers and those purchasing homes on Rural Land. The USDA or Rural Financing allows for borrowers to purchase a home in a designated area with 0% down.
4. 80/10/10 - Lenders use the 80/10/10 to describe a loan in which a borrower has a 1st mortgage of 80%, a 2nd mortgage of 10%, and a down payment of 10%. By doing this type of loan purchasers can avoid paying Mortgage Insurance (read the last what it all means article to find out more about mortgage insurance)
5. APR - Annual Percentage Rate: the annual percentage rate is not the rate that your mortgage payment is based off of. Every lender has to disclose the true cost of the loan to their potential clients. In order to do this accurately the APR was introduced as a way to break down the cost of your loan, with all fees included, and display this into an interest rate. You will notice when you buy a home or do a refinance that you will get a copy of what is called the Truth-In-Lending disclosure (TIL) this disclosure will show you the principal amount of your loan seperated from the finance charges (which is the amount you will pay in interest during your entire mortgage term) then it will display the total of the two and you will see an APR. Don't worry, your APR is not what your interest rate is, it's just there to show you, in the form of an interest rate, how much your loan is costing you.
These terms complete Part 2 of What It All Means. Don't hesistate from asking questions. I have noticed that a lot of people are visiting my site and reading the information I'm putting out here but no one is interacting and asking questions. I want this site to be a great place for information and conversing. Thank you all again for visiting!
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Tuesday, August 18, 2009
Thursday, August 13, 2009
First Time Home Buyers - What it all means....
Have you ever sat down at a mortgage loan officers desk and started a conversation about buying a home with them? If you answer is yes the you probably walked away with a headache and a list of terms in your mind that you knew nothing about. In the lending world we have so many different terms that we use to describe things to help ease our lives, however, this is not the case for the people sitting on the other side of our desks. Most of the time we will see our First Time Home Buyers stare into oblivion as we are talking and we have to stop ourselves and realize that we are using terms that no one knows!
It is for this reason that I want you all to know what our terms mean! Now some may differ from lender to lender but for the 8 years I have been in lending these are the terms that I use daily.
1. PITIMI (piti-me) - This is an abbreviation that describes a persons total mortgage payment. P = Principal, I = Interest, T = Taxes, I = Insurance, and the MI = Mortgage Insurance. Generally when you buy a home you will have a PITIMI payment, there are exceptions but we will get into those later.
2. MI (mortgage Insurance) - I figured sense we talked about this one above I might as well explain a bit what MI really is. Contrary to belief this does not benefit you at all! Mortgage insurance is just that, insurance for your mortgage loan. The financial institution that you get your mortgage from will have an insurance policy put on your loan in case you default on your loan and they have to sell your property. The MI will help them recover any extra amount that they do not get from the sale of your home in order to cover the portion that the lent to you. So how can you avoid mortgage insurance? Well there are two options: Option 1 - put down at least 20% when you purchase the home, this will mean that your mortgage loan amount will be 80% of the purchase price which means you are no longer a risky loan. OR Option 2 - Put down 10% when you purchase the home and get 2 loans, one 1st mortgage for 80% LTV (we will explain that one next) and a 2nd mortgage for 10%. By doing option 2 your 1st mortgage is not considered risky.
3. LTV & CLTV (Loan-to-value & Combined-loan-to-value) - these two work together. The simplest way to explain the two is by breaking each one down. First LTV - If you divide your loan amount by your purchase price and multiply it by 100 you will get your LTV percentage (or the amount of loan vs. purchase price). The CLTV can be a bit more difficult but not much. The difference with the CLTV comes in if you have 2 mortgages during a purchase. If you buy a home and put 10% down and have a 2nd mortgage for 10% then your first mortgage LTV is 80% (the remaining after your down payment and your 2nd mortgage) But your CLTV is 90% because you combine the value of any loans on the property and then divide it by the purchase price and multiply by 100.
4. D/I (debt-to-income) - I talk about the D/I a lot during the 8 steps to home ownership but for a quick recap your D/I is calculated using your gross monthly income and your minimum monthly credit payments (just things that show on your credit report). Your D/I is very important because each bank has guidelines for the Maximum D/I a person can have with a mortgage payment included in it. If you are over their limits then you will not be able to buy the home in the price range that puts you over. To figure your D/I all you have to do is divide your minimum monthly credit payments by your gross monthly income (before taxes) and multiply your answer by 100 this will get you your D/I in a percentage.
5. FRM vs ARM - FRM or Fixed Rate Mortgage and ARM or Adjustable Rate Mortgage are two different types of loans that you can get. The FRM is just what it sounds like, this mortgage offers you an interest rate that will not change during the life of the loan and a mortgage payment that should stay right around the same, but never more then started with (UNLESS YOUR TAXES OR INSURANCE GO UP). The ARM is an adjustable rate mortgage generally where your interest rate is first locked for 1, 3, or 5 years and after the first initial lock can go up or down each year after that. Your payments will adjust with the ARM and are not set in stone.
Well there is the first lesson in Mortgage terms. I will go over some more in a while but I want to give you a rest first!
It is for this reason that I want you all to know what our terms mean! Now some may differ from lender to lender but for the 8 years I have been in lending these are the terms that I use daily.
1. PITIMI (piti-me) - This is an abbreviation that describes a persons total mortgage payment. P = Principal, I = Interest, T = Taxes, I = Insurance, and the MI = Mortgage Insurance. Generally when you buy a home you will have a PITIMI payment, there are exceptions but we will get into those later.
2. MI (mortgage Insurance) - I figured sense we talked about this one above I might as well explain a bit what MI really is. Contrary to belief this does not benefit you at all! Mortgage insurance is just that, insurance for your mortgage loan. The financial institution that you get your mortgage from will have an insurance policy put on your loan in case you default on your loan and they have to sell your property. The MI will help them recover any extra amount that they do not get from the sale of your home in order to cover the portion that the lent to you. So how can you avoid mortgage insurance? Well there are two options: Option 1 - put down at least 20% when you purchase the home, this will mean that your mortgage loan amount will be 80% of the purchase price which means you are no longer a risky loan. OR Option 2 - Put down 10% when you purchase the home and get 2 loans, one 1st mortgage for 80% LTV (we will explain that one next) and a 2nd mortgage for 10%. By doing option 2 your 1st mortgage is not considered risky.
3. LTV & CLTV (Loan-to-value & Combined-loan-to-value) - these two work together. The simplest way to explain the two is by breaking each one down. First LTV - If you divide your loan amount by your purchase price and multiply it by 100 you will get your LTV percentage (or the amount of loan vs. purchase price). The CLTV can be a bit more difficult but not much. The difference with the CLTV comes in if you have 2 mortgages during a purchase. If you buy a home and put 10% down and have a 2nd mortgage for 10% then your first mortgage LTV is 80% (the remaining after your down payment and your 2nd mortgage) But your CLTV is 90% because you combine the value of any loans on the property and then divide it by the purchase price and multiply by 100.
4. D/I (debt-to-income) - I talk about the D/I a lot during the 8 steps to home ownership but for a quick recap your D/I is calculated using your gross monthly income and your minimum monthly credit payments (just things that show on your credit report). Your D/I is very important because each bank has guidelines for the Maximum D/I a person can have with a mortgage payment included in it. If you are over their limits then you will not be able to buy the home in the price range that puts you over. To figure your D/I all you have to do is divide your minimum monthly credit payments by your gross monthly income (before taxes) and multiply your answer by 100 this will get you your D/I in a percentage.
5. FRM vs ARM - FRM or Fixed Rate Mortgage and ARM or Adjustable Rate Mortgage are two different types of loans that you can get. The FRM is just what it sounds like, this mortgage offers you an interest rate that will not change during the life of the loan and a mortgage payment that should stay right around the same, but never more then started with (UNLESS YOUR TAXES OR INSURANCE GO UP). The ARM is an adjustable rate mortgage generally where your interest rate is first locked for 1, 3, or 5 years and after the first initial lock can go up or down each year after that. Your payments will adjust with the ARM and are not set in stone.
Well there is the first lesson in Mortgage terms. I will go over some more in a while but I want to give you a rest first!
Monday, August 10, 2009
So You Want A Credit Score of 850?
So what is a credit score? Well first off FICO was founded in 1956 by Fair Isaac Company which is where we get the abbreviation of FICO from. When founded it was believed that we needed a system to help lenders determine who was more likely to default on a loan and who was most likely to repay a loan.
The scoring for your FICO has a range of 300 - 850 (in some cases 900). Everything you do that involves your social security number effects your credit score. Some times for better and some times for worse. But how do you achieve perfect credit? Well there really aren't 100% easy answers, just simple things you can do to create a respectable credit profile. The following 6 steps are the easiest steps to follow to get good credit. If you for one reason or another cannot follow these steps then you may need to take further action towards helping your credit score (we'll talk about that later)
1. You need to have at least 3 - 5 but no more then 5 open credit cards with a combination of credit cards from major lenders and 1 or 2 from places like shopping stores or gas cards. If you have more then 5 credit cards total this can effect your credit negatively
2. Keep your credit card balances less then 30% - This is key. If you have your credit cards maxed out it creates a negative score for your credit score and will damage it. Now keep in mind this does not mean you can't use the full credit balance but if you do try to pay it down before your statement cycles ends for that month so that they are either paid in full or paid down to 30% of the available credit limit (ex: Credit Limit of $1,000.00 don't have a balance carrying over to the next statement cycle of more then $300.00)
3. DO NOT CLOSE OUT YOUR CREDIT CARDS! You want to do a few things prior to closing out credit cards. 1st if you have a bunch of credit cards open you need to check and see which credit card is the oldest credit card opened on your credit profile. Think back to when you turned 18 and you got your first credit card. Did you close it or is it still out there open somewhere? Well I hope it is still open! Your oldest credit card shows when your credit history was started. This is huge! Your credit history is about 35% of your credit score number. If you were to close out your oldest credit card you eliminate your credit history start date to the next credit card that was opened; some times eliminating over 5 years of credit history! Secondly you do not want to close out all your extra cards at one time. By doing this you raise a red flag and your credit score will reflect that red flag by dropping. If you have a lot of credit card opens you need to close 2 to 3 per month, no more then that.
4. Be a homeowner and have a mortgage - This shows stability and a long credit history is associated with a mortgage. Having a long credit history is very important.
5. Avoid bankruptcies and judgments - This is obvious. These are very difficult to remove and stay on your credit report for 10 years.
6. Don’t make any late payments - Late payments hurt your credit score for up to 24 months in most cases (they can sometimes effect your credit score for longer then 24 months).
So if you can follow these 6 steps you will start to see an increase in your credit score within the first 30 days of starting the steps.
Now for those of you that can't avoid making late payment or have no other option but bankruptcies you need to look at my other blog at First Time Home Buyers - Does Bad Credit Mean No?
The scoring for your FICO has a range of 300 - 850 (in some cases 900). Everything you do that involves your social security number effects your credit score. Some times for better and some times for worse. But how do you achieve perfect credit? Well there really aren't 100% easy answers, just simple things you can do to create a respectable credit profile. The following 6 steps are the easiest steps to follow to get good credit. If you for one reason or another cannot follow these steps then you may need to take further action towards helping your credit score (we'll talk about that later)
1. You need to have at least 3 - 5 but no more then 5 open credit cards with a combination of credit cards from major lenders and 1 or 2 from places like shopping stores or gas cards. If you have more then 5 credit cards total this can effect your credit negatively
2. Keep your credit card balances less then 30% - This is key. If you have your credit cards maxed out it creates a negative score for your credit score and will damage it. Now keep in mind this does not mean you can't use the full credit balance but if you do try to pay it down before your statement cycles ends for that month so that they are either paid in full or paid down to 30% of the available credit limit (ex: Credit Limit of $1,000.00 don't have a balance carrying over to the next statement cycle of more then $300.00)
3. DO NOT CLOSE OUT YOUR CREDIT CARDS! You want to do a few things prior to closing out credit cards. 1st if you have a bunch of credit cards open you need to check and see which credit card is the oldest credit card opened on your credit profile. Think back to when you turned 18 and you got your first credit card. Did you close it or is it still out there open somewhere? Well I hope it is still open! Your oldest credit card shows when your credit history was started. This is huge! Your credit history is about 35% of your credit score number. If you were to close out your oldest credit card you eliminate your credit history start date to the next credit card that was opened; some times eliminating over 5 years of credit history! Secondly you do not want to close out all your extra cards at one time. By doing this you raise a red flag and your credit score will reflect that red flag by dropping. If you have a lot of credit card opens you need to close 2 to 3 per month, no more then that.
4. Be a homeowner and have a mortgage - This shows stability and a long credit history is associated with a mortgage. Having a long credit history is very important.
5. Avoid bankruptcies and judgments - This is obvious. These are very difficult to remove and stay on your credit report for 10 years.
6. Don’t make any late payments - Late payments hurt your credit score for up to 24 months in most cases (they can sometimes effect your credit score for longer then 24 months).
So if you can follow these 6 steps you will start to see an increase in your credit score within the first 30 days of starting the steps.
Now for those of you that can't avoid making late payment or have no other option but bankruptcies you need to look at my other blog at First Time Home Buyers - Does Bad Credit Mean No?
Tuesday, August 4, 2009
New Risk Based Score Breaks the Trust of Consumers
Equifax, Experian and Transunion have begun limited marketing of a new consumer credit scoring algorithm to Risk Based Lenders. According to David Rubinger of Equifax, the planned nationwide rollout to Risk Based Lenders is scheduled for July, and will be followed, approximately 9 months later, with the public disclosure of these scores to consumers.
An algorithm is a mathematical formula that is written to assign value to specific data in order to attain a final score. Risk Based Lenders are financial institutions that lend money based upon a consumer's credit history and the consumer's ability and historical willingness to repay a loan. These types of lenders cover the full range of financial institutions lending money for credit cards, auto loans, unsecured loans and mortgage loans.
David Rubinger, the national marketing contact for Equifax, explained "approximately one year ago, the analytical managers for the 3 credit bureaus got together for the purposes of addressing variations within the present scoring models in use. Under the current system, the three major credit-reporting agencies use three different algorithms that produce three different and unique scores, regardless of the data being scored. The primary issue to be addressed was how they could create a solution for Risk Based Lenders who wanted fewer variations within the credit scoring models they were using to make lending decisions."
The solution for the three agencies was to create a single algorithm that would produce a more "predictive score" by creating a single variable in scoring, which would be the data. To do this, they came up with a solution that involved creating an independent company called VantageScore, LLC. Each credit-reporting agency would own an equal share in the company, and purchase a license to use and sell the resulting scores to risk based lenders under the VantageScore service mark. The hard part was creating the uniform scoring that the three credit-reporting agencies were attempting to design and sell.
To achieve as close a model as possible, the three credit agencies tested the initial base algorithm on 15 million active credit files. Throughout the testing process, changes were made to the algorithm as were needed to create a more stable scoring model until the finished product created an acceptable level of score variance in the finished product.
By creating an independent LLC company, the three credit reporting agencies are now able to offer a single product that has only one variable, the data being scored. Where the credit information reported is the same, the score for a consumer file will be the same, regardless of whether the score comes from Transunion, Experian, or Equifax. Where the credit information is different, the variations in the actual score will be significantly reduced.
Under the new VantageScore product, the three agencies decided to change the scoring formula from its current 450 to 850 scoring range to a new 501 to 990 range. When asked about why they would do this, Rubinger responded, "The new scoring model is to help consumers better understand their credit score. By basing it on a grading scale used throughout the K through 12 school system, consumers can look at their score and know exactly what they have". Unfortunately for Risk Based Lenders, the new scoring model will require they spend thousands of dollars in updating software to incorporate the new scoring model.
When asked about some of the negative aspects of the change, Mr. Rubinger declined to answer any questions.
The initial question that Down Payment Solutions has relates to anti-trust laws and where the congressional oversight is. As we only have three major Credit Reporting Agencies, how is it they can bypass any oversight to create an LLC company in order to offer a single uniform product in which all can sell, with the goal appearing to be the complete replacement of the present day independent scoring algorithms?
When contacted for comment on this matter, the Department of Justice - Anti-Trust division - declined comment and suggested consumers who have concerns should e-mail them at antitrust.complaints@usdoj.gov. Neither Senator Bill Nelson (D - FL), Senator Mel Martinez (R - FL), Congressman Jim Davis (D-FL) or Congressman Michael Bilirakis (R- FL) offices would offer any comments for this article.
Jan Helder of the Helder Law Firm called the formation of a LLC by the three Credit Reporting Agencies "shady, at best" and advised that, unfortunately for consumers, they "cannot file an anti-trust suit until they have experienced a financial loss resulting from the new VantageScore credit scoring system, and then they will have to prove financial loss in court." This will be well after low to moderate-income families, and the businesses dependent upon them, have felt the tightening of credit nationwide.
"The new VantageScore model creates a significant financial risk to consumers in their ability to obtain affordable financing," according to Dwayne Singletary of Allstate Mortgage and Loan Corp in Tampa, Florida. "Many risk-based lenders in the mortgage industry use all three credit-reporting scores--also known as a Tri-Merged Credit Report--and have programs that allow them to use the credit-reporting agency that has the highest credit score. A reduction in that higher score will most likely result in home buyers needing more money out of pocket for a down payment, or require them to pay a higher rate of interest." under the VantageScore model, whether refinancing or purchasing.
In the installment and revolving credit market, most risk-based lenders do not use the scores from all three reporting agencies. Rather, each lender selects the reporting agency that best fits their type of borrower. A reduction in any one score across any credit-reporting agency, via adoption of the VantageScore algorithm, could result in consumers being unable to obtain credit, or consumers paying a significantly higher rate of interest to borrow the same money tomorrow, versus what they would pay under the current separate credit-scoring models.
Rubinger contends the new scoring model is designed to help consumers better understand their score. However, given the thousands of dollars in financial costs that will be incurred by Risk Based Lenders in updating programming, it leaves the impression the new scoring model may actually be designed to mislead consumers into believing the new VantageScore system actually improves their credit scores.
Under the current system, in theory, if a consumer has a Transunion credit score of 600, then potentially under the new VantageScore model, they could have a score as high as 720. This certainly would go a long way towards silencing a potential consumer backlash if someone with challenged credit sees a dramatic increase in their credit score. This is potentially misleading, and may be the reason for the delay in consumers having access to their new VantageScore credit score for any given credit-reporting agency.
At present, it has not been disclosed how consumers will know what model they are being scored under. As consumers apply for credit, most will assume they are being scored under existing Credit Models, when in fact; they may have been scored under the VantageScore system if a particular financial institution adopted it.
Consumers who are concerned about the potential implications that VantageScore has on their financial future should contact the DOJ - Anti-Trust Division. In addition, we strongly encourage you to contact your Congressman via www.congress.org.
Down Payment Solutions believes that before this new Credit Scoring System is implemented, both the DOJ and Congress have some over sight as to how, when and if Transunion, Experian and Equifax, can implement this type of product in order to protect every American consumer and the businesses dependent upon them.
Author: George Chaney, President, Down Payment Solutions, Inc. http://www.downpaymentsolutions.com
An algorithm is a mathematical formula that is written to assign value to specific data in order to attain a final score. Risk Based Lenders are financial institutions that lend money based upon a consumer's credit history and the consumer's ability and historical willingness to repay a loan. These types of lenders cover the full range of financial institutions lending money for credit cards, auto loans, unsecured loans and mortgage loans.
David Rubinger, the national marketing contact for Equifax, explained "approximately one year ago, the analytical managers for the 3 credit bureaus got together for the purposes of addressing variations within the present scoring models in use. Under the current system, the three major credit-reporting agencies use three different algorithms that produce three different and unique scores, regardless of the data being scored. The primary issue to be addressed was how they could create a solution for Risk Based Lenders who wanted fewer variations within the credit scoring models they were using to make lending decisions."
The solution for the three agencies was to create a single algorithm that would produce a more "predictive score" by creating a single variable in scoring, which would be the data. To do this, they came up with a solution that involved creating an independent company called VantageScore, LLC. Each credit-reporting agency would own an equal share in the company, and purchase a license to use and sell the resulting scores to risk based lenders under the VantageScore service mark. The hard part was creating the uniform scoring that the three credit-reporting agencies were attempting to design and sell.
To achieve as close a model as possible, the three credit agencies tested the initial base algorithm on 15 million active credit files. Throughout the testing process, changes were made to the algorithm as were needed to create a more stable scoring model until the finished product created an acceptable level of score variance in the finished product.
By creating an independent LLC company, the three credit reporting agencies are now able to offer a single product that has only one variable, the data being scored. Where the credit information reported is the same, the score for a consumer file will be the same, regardless of whether the score comes from Transunion, Experian, or Equifax. Where the credit information is different, the variations in the actual score will be significantly reduced.
Under the new VantageScore product, the three agencies decided to change the scoring formula from its current 450 to 850 scoring range to a new 501 to 990 range. When asked about why they would do this, Rubinger responded, "The new scoring model is to help consumers better understand their credit score. By basing it on a grading scale used throughout the K through 12 school system, consumers can look at their score and know exactly what they have". Unfortunately for Risk Based Lenders, the new scoring model will require they spend thousands of dollars in updating software to incorporate the new scoring model.
When asked about some of the negative aspects of the change, Mr. Rubinger declined to answer any questions.
The initial question that Down Payment Solutions has relates to anti-trust laws and where the congressional oversight is. As we only have three major Credit Reporting Agencies, how is it they can bypass any oversight to create an LLC company in order to offer a single uniform product in which all can sell, with the goal appearing to be the complete replacement of the present day independent scoring algorithms?
When contacted for comment on this matter, the Department of Justice - Anti-Trust division - declined comment and suggested consumers who have concerns should e-mail them at antitrust.complaints@usdoj.gov. Neither Senator Bill Nelson (D - FL), Senator Mel Martinez (R - FL), Congressman Jim Davis (D-FL) or Congressman Michael Bilirakis (R- FL) offices would offer any comments for this article.
Jan Helder of the Helder Law Firm called the formation of a LLC by the three Credit Reporting Agencies "shady, at best" and advised that, unfortunately for consumers, they "cannot file an anti-trust suit until they have experienced a financial loss resulting from the new VantageScore credit scoring system, and then they will have to prove financial loss in court." This will be well after low to moderate-income families, and the businesses dependent upon them, have felt the tightening of credit nationwide.
"The new VantageScore model creates a significant financial risk to consumers in their ability to obtain affordable financing," according to Dwayne Singletary of Allstate Mortgage and Loan Corp in Tampa, Florida. "Many risk-based lenders in the mortgage industry use all three credit-reporting scores--also known as a Tri-Merged Credit Report--and have programs that allow them to use the credit-reporting agency that has the highest credit score. A reduction in that higher score will most likely result in home buyers needing more money out of pocket for a down payment, or require them to pay a higher rate of interest." under the VantageScore model, whether refinancing or purchasing.
In the installment and revolving credit market, most risk-based lenders do not use the scores from all three reporting agencies. Rather, each lender selects the reporting agency that best fits their type of borrower. A reduction in any one score across any credit-reporting agency, via adoption of the VantageScore algorithm, could result in consumers being unable to obtain credit, or consumers paying a significantly higher rate of interest to borrow the same money tomorrow, versus what they would pay under the current separate credit-scoring models.
Rubinger contends the new scoring model is designed to help consumers better understand their score. However, given the thousands of dollars in financial costs that will be incurred by Risk Based Lenders in updating programming, it leaves the impression the new scoring model may actually be designed to mislead consumers into believing the new VantageScore system actually improves their credit scores.
Under the current system, in theory, if a consumer has a Transunion credit score of 600, then potentially under the new VantageScore model, they could have a score as high as 720. This certainly would go a long way towards silencing a potential consumer backlash if someone with challenged credit sees a dramatic increase in their credit score. This is potentially misleading, and may be the reason for the delay in consumers having access to their new VantageScore credit score for any given credit-reporting agency.
At present, it has not been disclosed how consumers will know what model they are being scored under. As consumers apply for credit, most will assume they are being scored under existing Credit Models, when in fact; they may have been scored under the VantageScore system if a particular financial institution adopted it.
Consumers who are concerned about the potential implications that VantageScore has on their financial future should contact the DOJ - Anti-Trust Division. In addition, we strongly encourage you to contact your Congressman via www.congress.org.
Down Payment Solutions believes that before this new Credit Scoring System is implemented, both the DOJ and Congress have some over sight as to how, when and if Transunion, Experian and Equifax, can implement this type of product in order to protect every American consumer and the businesses dependent upon them.
Author: George Chaney, President, Down Payment Solutions, Inc. http://www.downpaymentsolutions.com
First Time Home Buyers - The Application Process and Making it Easier
So you have decided you want to buy a home and you are going to use my step-by-step information to do so. Well, STOP! You first need to know the in's and out's to the application process. If you can walk into your lenders office pre-pared for the application it will make your life much simpler.
The first thing you need to do when you walk into a lenders office is to already know how much of a home you are looking for. This will just eliminate a lot of time that the lender will take to decide how much of a home you can really buy. You can find out more about this by reading my step-by-step guide, which I highly recommend doing before you buy a home.
Once you have figured out how much you can afford you will want to write that amount down and bring it to your lenders office. You will also want to bring a copy of your most current 30 day pay check stub, for most of us this means you will take two stubs in with you. They will most likely want to see your W2's and your 2 years worth of tax returns as well. What this will do is this allows your lender to be able to more accurately determine if you are in the right price range.
The next thing you will want to get is your most current 2 month bank statements and any retirement or investment statements you might have. The lender will need these for a few different reasons. 1st, they need to see that you have the money for a down payment (now some programs don't require a down payment so you will need to talk with them about which program is the best for you and your unique situation). 2ND, your lender will need the statements to show that you have at least 2 months worth of reserves. Reserves is a complex way of saying that you have 2 month worth of your mortgage payments available in case of an emergency. One BIG thing to note is that when you present bank statements you need to be able to document where any and all of your larger deposits came from. If you recently had a $5,000 cash deposit put into your bank account and you cannot prove with out a doubt where the cash came from then your lender will not be able to use this $5,000 for proof of down payment or even for proof of reserves, to the bank it doesn't exist.
Generally when you do any type of loan application the lender will also want a copy of your drivers license to be able to verify that you are truly the person who is applying for credit. Just remember to bring it with you, they may or may not need it.
Finally make sure that you have at least 2 years address history and employment history. What this means is that you have been living at your current residence for at least 2 years, and if not then you know your previous address and can give it to them with the dates you lived there. Like wise if you do not have a total of 2 years employment history then you ill need to know your previous and all the details of that employer as well.
The last thing that you will want to bring to them is a smile and lots of patients because the first meeting generally take a lot longer then the rest of them!
The first thing you need to do when you walk into a lenders office is to already know how much of a home you are looking for. This will just eliminate a lot of time that the lender will take to decide how much of a home you can really buy. You can find out more about this by reading my step-by-step guide, which I highly recommend doing before you buy a home.
Once you have figured out how much you can afford you will want to write that amount down and bring it to your lenders office. You will also want to bring a copy of your most current 30 day pay check stub, for most of us this means you will take two stubs in with you. They will most likely want to see your W2's and your 2 years worth of tax returns as well. What this will do is this allows your lender to be able to more accurately determine if you are in the right price range.
The next thing you will want to get is your most current 2 month bank statements and any retirement or investment statements you might have. The lender will need these for a few different reasons. 1st, they need to see that you have the money for a down payment (now some programs don't require a down payment so you will need to talk with them about which program is the best for you and your unique situation). 2ND, your lender will need the statements to show that you have at least 2 months worth of reserves. Reserves is a complex way of saying that you have 2 month worth of your mortgage payments available in case of an emergency. One BIG thing to note is that when you present bank statements you need to be able to document where any and all of your larger deposits came from. If you recently had a $5,000 cash deposit put into your bank account and you cannot prove with out a doubt where the cash came from then your lender will not be able to use this $5,000 for proof of down payment or even for proof of reserves, to the bank it doesn't exist.
Generally when you do any type of loan application the lender will also want a copy of your drivers license to be able to verify that you are truly the person who is applying for credit. Just remember to bring it with you, they may or may not need it.
Finally make sure that you have at least 2 years address history and employment history. What this means is that you have been living at your current residence for at least 2 years, and if not then you know your previous address and can give it to them with the dates you lived there. Like wise if you do not have a total of 2 years employment history then you ill need to know your previous and all the details of that employer as well.
The last thing that you will want to bring to them is a smile and lots of patients because the first meeting generally take a lot longer then the rest of them!
First Time Home Buyers - Does Bad Credit Mean No?
So you want to buy a home but you know that you have messed up your credit. Does this mean you shouldn't try? Well yes, and no. As a lender I have to tell you, go ahead and try if you want to. As a person that has been in your shoes I will tell you, you need to know more about your credit then I have messed it up. What is your credit score? What is showing on your credit report? What negative items might effect me buying a home? How can I fix some of these negative things? Well I will tell you that it is not as hard as you think to fix your credit.
I personally fixed up my credit over a year ago and within 45 days of starting the proccess I was able to increase my score by 110pts and purchase my first house. There are a few things that you need to do to get started. First and foremost you need to pull your credit, don't worry there are ways to get your credit report without having to pay for it. Once you have your credit report you need to look through it very carefully and start highlighting all the things that need to get fixed. You then want to start looking at your current finances. What can you pay off? What can be deleted from your credit report? What really needs to be fixed?
These are just a few questions that you need to get answered in order to fix your credit. If you would like to use the book that helped me fix my credit you can download it directly from the link bellow. The seller lowered their price from $29.99 to $10.00 so it is even cheaper now. The download is a PDF format download. This book is great! When I used it for myself I was able to learn how to get negative items deleted from my credit report, I was also able to settle debts and get them removed from my credit report once they were settled. The entire proccess cost me $9.00 (the cost of 3 letters being sent certified mail)! If you have some questions once you have downloaded the book you can always leave me a question on this blog and I will give you my insite as well.
I personally fixed up my credit over a year ago and within 45 days of starting the proccess I was able to increase my score by 110pts and purchase my first house. There are a few things that you need to do to get started. First and foremost you need to pull your credit, don't worry there are ways to get your credit report without having to pay for it. Once you have your credit report you need to look through it very carefully and start highlighting all the things that need to get fixed. You then want to start looking at your current finances. What can you pay off? What can be deleted from your credit report? What really needs to be fixed?
These are just a few questions that you need to get answered in order to fix your credit. If you would like to use the book that helped me fix my credit you can download it directly from the link bellow. The seller lowered their price from $29.99 to $10.00 so it is even cheaper now. The download is a PDF format download. This book is great! When I used it for myself I was able to learn how to get negative items deleted from my credit report, I was also able to settle debts and get them removed from my credit report once they were settled. The entire proccess cost me $9.00 (the cost of 3 letters being sent certified mail)! If you have some questions once you have downloaded the book you can always leave me a question on this blog and I will give you my insite as well.
Thursday, July 30, 2009
First Time Home Buyers Get $8,000.00!!!!!
So I'm sure all of you have heard about the First Time Home Buyer tax credit that is out there for 2009 first time home buyers. And if not, well listen up!
So here it is.....all you want to know about the first time home buyer tax credit...
Now don't get too excited you can't just sign for a new home and "bang" you have $8,000 given to you, it just doesn't work that way. Instead the The American Recovery and Reinvestment Act of 2009 allows a tax credit for your 2009 tax year to be applied of up to $8,000.00 for qualified first time home buyers purchasing a principal residence in the dates between January 1st 2009 and December 1st 2009.
Bellow is a set of some questions and answers that are very common around the first time home buyer credit. Now, before I go into them remember I am not a tax advisor and you should always consult one with questions. (do you like my little disclaimer?)
1. Who is able to receive the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner
2. How do you define first time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
3. How do you determin how much you are getting?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. What type of income limits, if any, are there?
The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income* (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What if my MAGI is above the limit, do I qualify for any of the tax credit?
It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits. (talk to a tax advisor)
6. How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
7. What types of homes qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences. (please note that you cannot purchase a home from a relative, talk to a tax advisor)
8. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
9. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
10. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
*Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.
Are you still awake? That is a lot of information to take in. The easiest way to explain the tax credit is.......if you don't own a home and haven't for 3 years, buy one now so you can get up to the $8,000 amount deducted from how much you owe in 2009 or if nothing owed you get a check back for that amount!
To apply for a loan visit My web page.
So here it is.....all you want to know about the first time home buyer tax credit...
Now don't get too excited you can't just sign for a new home and "bang" you have $8,000 given to you, it just doesn't work that way. Instead the The American Recovery and Reinvestment Act of 2009 allows a tax credit for your 2009 tax year to be applied of up to $8,000.00 for qualified first time home buyers purchasing a principal residence in the dates between January 1st 2009 and December 1st 2009.
Bellow is a set of some questions and answers that are very common around the first time home buyer credit. Now, before I go into them remember I am not a tax advisor and you should always consult one with questions. (do you like my little disclaimer?)
1. Who is able to receive the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner
2. How do you define first time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
3. How do you determin how much you are getting?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
4. What type of income limits, if any, are there?
The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income* (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What if my MAGI is above the limit, do I qualify for any of the tax credit?
It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits. (talk to a tax advisor)
6. How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
7. What types of homes qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences. (please note that you cannot purchase a home from a relative, talk to a tax advisor)
8. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
9. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.
10. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
*Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.
Are you still awake? That is a lot of information to take in. The easiest way to explain the tax credit is.......if you don't own a home and haven't for 3 years, buy one now so you can get up to the $8,000 amount deducted from how much you owe in 2009 or if nothing owed you get a check back for that amount!
To apply for a loan visit My web page.
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