Six Credit Report Tips For Homebuyers

(MCT)—Whether you plan to buy a home in six months or a year or two, you’ve probably been told to request your free credit report to check for errors and to see what a lender can learn about you from the report.

“We usually tell people to request one of their three free credit reports from either Experian, Equifax or TransUnion every four months from AnnualCreditReport.com, but when you’re getting ready to apply for a home loan, we suggest that you get all three at once,” says Susan Tiffany, director of personal finance for adults for the Credit Union National Association in Madison, Wis. “All three credit bureaus have different reporting patterns and each could have a different error that you might need to fix.”

Here are six tips for understanding your credit report — and how to correct errors — when you’re preparing to buy a home.

READ YOUR CREDIT REPORT LIKE A LENDER

“When lenders read your credit report, they’ll be looking for issues such as a problem making your mortgage payments on time, a high level of debt and the maturity of your credit,” says Jeffrey Taylor, managing partner of Digital Risk, a provider of mortgage processing services and risk analytics in Maitland, Fla. “If you have a four- or five-year history with a major credit card, that’s better than six months with a local store credit card.”

A pattern of late payments, especially recently, is one of the worst things to have on your credit report, says Patrick Cunningham, vice president and partner of HST Mortgage in Fairfax, Va.

“Recent late payments are even worse than an old judgment or lien that shows up as satisfied on your report,” says Cunningham. “The other thing that will stop a loan in its tracks is a tax lien or judgment that hasn’t been satisfied.”

Keeping in mind what lenders are looking for, you should work your way through your credit report to check for accuracy and negative information.

CHECK YOUR ID

The first section on your credit report will have your name, address and previous addresses, but before you skim past this, check these for accuracy. Cunningham says even people with good credit need to make sure that the basic information on all three credit reports is accurate because an inaccuracy will need to be corrected and can cause a delay when you’re getting ready to settle on your home.

REVIEW YOUR PUBLIC RECORDS

The public records section of your credit report shows any liens, judgments, bankruptcies or foreclosures that have been reported by a court system. If this section is empty, it means you don’t have any of these items on your credit report. If you do have one or more of these items, check carefully to see if they’re yours and if they show as satisfied or settled. Anything unresolved will prevent you from getting a home loan, says Cunningham.

“I had a collection show up on my credit report that wasn’t mine,” Taylor says. “You can make calls directly to the creditor and try to get them to send corrected information to the credit bureaus, but I ended up hiring someone to get my report corrected.”

Any negative information such as a settled lien, judgment or bankruptcy will stay on your report for seven to 10 years, Tiffany says.

LOOK FOR DELINQUENCIES

“Every payment you make is very important, so make sure your credit report shows that you’ve made each one on time,” Taylor says. “Consistency is key when you’re applying for a loan.”

One or two late payments from several years ago isn’t likely to stop you from getting a loan, but you need to have at least 12 months of on-time payments, particularly on a mortgage, to qualify for a loan, Cunningham says.

“If you see a late payment report that you know is incorrect, you need to contact your creditor and provide evidence that you made the payment on time,” Cunningham says. “It can take months to correct an error, so that’s why it’s so important to look at your report early in the process of applying for a loan. If the late payment is accurate, then you’ll need to explain what happened and why.”

CHECK YOUR CREDIT BALANCES AND LIMITS

Cunningham says most creditors accurately report credit limits, but if yours isn’t right, you can contact the creditor to ask for a correction.

“Your balance is a little trickier because it’s a snapshot of a specific day,” Cunningham says. “Even if you pay your credit card in full each month, it could show a balance if the creditor reports on the day before your payment goes through.”

INVESTIGATE YOUR INQUIRIES

Inquiries refer to a request for your credit report by a company where you applied for credit, insurance or a loan; in addition, inquiries can be made for account monitoring by existing creditors, a job application or by you, but those are not visible to lenders when they check your credit. A handful of credit checks by different companies over the course of a year won’t hurt your loan application, but if you’ve applied for a lot of credit, it can impact your credit profile.

“If you’re on the bubble of qualifying for a loan and the lender sees a lot of inquiries for credit cards and store cards, it could hurt you because it looks like you’re trying to stretch your cash flow,” Tiffany says.

If you see inquiries on your credit report that you didn’t make, this is a sign that someone might be trying to steal your identity and is applying for credit in your name, Cunningham says.

Final Mortgage Ruling Nixes 20-Percent Down Payment Requirement

Approved mortgage applicationAs reported by the AP, new rules adopted yesterday by six federal agencies include the removal of a big stumbling block for would-be borrowers: the 20 percent down payment if a lender didn’t hold at least 5 percent of the mortgage securities tied to those loans on its books.

According to the AP article, which appeared on abcnews.com, the final rules released Tuesday will include the more relaxed requirement that borrowers not carry excessive debt relative to their income. The board of the Federal Deposit Insurance Corp. voted 4-1 Tuesday to adopt the rules, and the Federal Reserve is scheduled to vote today, along with four other agencies.

According to Mel Watt, director of the Federal Housing Finance Agency, “Finalizing this rule represents a major step forward to providing greater certainty to the housing finance market and paves the way for increased participation by the private sector. Aligning the Qualified Residential Mortgage standard with the existing Qualified Mortgage definition also means more clarity for lenders and encourages safe and sound lending to creditworthy borrowers. Lenders have wanted and needed to know what the new rules of the road are and this rule defines them.”​

Proposed in the wake of the 2008 financial meltdown, the Qualified Mortgage (QM) rule put forth by the Consumer Financial Protection Bureau (CFPB) was designed to restrict the unsafe lending practices that led to the downturn. According to the AP article, “CFPB Director Richard Cordray, a member of the FDIC board, noted at Tuesday’s meeting that conditions in the mortgage market have changed since the financial crisis and the time of the enactment of the 2010 overhaul law, when anxiety over reckless lending gripped lawmakers.”

The real estate industry and mortgage bankers have been fiercely lobbying against the 20-percent down payment requirement, emphasizing that it could limit access to mortgage financing for low- and moderate-income borrowers and thereby, severely hamper the housing recovery.

“NAR applauds the Federal Deposit Insurance Corporation for finalizing the Qualified Residential Mortgage rule today, which includes a broad definition of QRM and aligns with the Qualified Mortgage standard implemented earlier this year,” said NAR President Steve Brown, co-owner of Irongate Inc. REALTORS® in Dayton, Ohio, in a statement released Tuesday. “REALTORS® are confident that the new QRM rule will encourage sound and financially prudent mortgage financing by lenders while also ensuring responsible homebuyers have access to safe and affordable credit. The synchronization with the QM rule will provide lenders with much needed clarity and consistency as they apply the new standards to loan applications while also providing a framework to bring more competition to the secondary mortgage market.”

According to Don Frommeyer, CEO of NAMB – The Association of Mortgage Professionals, this move is long overdue and will have a notable impact on the housing market and the economy as a whole.

“Perhaps Ben Bernanke’s admission that he couldn’t refinance his home loan got some people talking,” said Frommeyer in a statement released Tuesday. “The reality is, if Main Street homebuyers can’t finance a mortgage, it doesn’t matter how good rates are. It doesn’t matter how low unemployment is. The economy will not fully recover. This is exactly what we need.”

According to NAMB, under the new proposal, banks would be able to offer financing options to people with less-than-perfect credit, and be protected from accusations of making bad loans. Down payments could go as low as three percent.

Some argue this will lead to another housing bust, but Frommeyer argues that with consumer confidence and home prices on the rise, it’s the right move at the right time.

“So many people have poor credit because they were forced to foreclose on their home,” said Frommeyer. “If we don’t figure out a way to get them back into a home, the housing market doesn’t stand a chance.”

“Importantly, the final rule relies on sound and responsible underwriting rather than on an onerous downpayment requirement to qualify as a QRM loan,” added Brown in his statement. “NAR strongly opposed earlier versions of the rule that included 20 and 30 percent downpayment requirements, which would have denied millions of Americans access to the lowest cost and safest mortgages.”

“We are largely pleased with the Qualified Residential Mortgage final rule released today, which will help ensure the largest number of creditworthy borrowers are able to access safe, quality loan products at competitive prices,” said Frank Keating, president and CEO of the American Bankers Association (ABA) in a statement released on Tuesday.” By law, the QRM definition cannot cover more loans than the existing Qualified Mortgage rule, but it might have been more restrictive. Gratefully, the QRM definition aligns with QM, an approach ABA has strongly advocated. This will encourage lenders to continue offering carefully underwritten QM loans, and avoid placing further hurdles before qualified borrowers, allowing them to achieve the American dream of homeownership. ABA and its member banks look forward to working with regulators to ensure we’re able to continue to make the home loans that help drive the economy forward.”

Winter Home Maintenance Tips

American Home Shield recently released five important tips to remind homeowners to take preventative maintenance steps and other precautions to help keep their homes cozy — and safe — this winter.

Heating system and air filters – It is always a good idea to have heating systems professionally serviced every year. Also filters should be checked monthly and replaced if needed, and system exhaust vents should be inspected for rust, damage or any corrosion.

Seals and openings – Check to make sure your doors and windows are properly sealed so heat does not escape. Inspect caulking and weather stripping around openings for wear and tear, and replace if necessary.

Plumbing – Burst water pipes can cause expensive damage. Take time now to wrap outside pipes that might be exposed to extreme temperatures. Review the locations for the main water and fuel shut-off valves with all members of your household.

Water Heaters – Test your water heater’s pressure relief valve once a year to make sure it is not clogged and is working safely. This is also a good time to check the tank for leaks or corrosion, and to flush it per manufacturer’s instructions to eliminate sediment build-up. Inspect your water heater pipes to make sure they are properly insulated, and that no insulation has come loose.

Have a plan – When you own a home, you know that things are going to break down – and when it happens, it is important to know who to call. A home warranty is a great way to protect your budget against costly repairs, and save yourself the time and hassle of finding a qualified professional to get major systems and appliances up and running again.

For more information,, visit www.ahs.com.

FHA Fees Are Holding Back First Time Homebuyers

homebuying_feesNote: This article originally appeared on AmericanBanker.com. In recent testimony before Congress, Federal Reserve Chairwoman Janet Yellen confirmed what many aspiring homebuyers have known for several years. “It has now become the case that any borrower without a pretty pristine credit rating finds it awfully hard to get a mortgage,” she says.

Lenders aren’t the only ones acting in a risk-averse manner. Well-intentioned but outdated federal policies are keeping America’s housing sector from achieving a full recovery.

In recent years, the Federal Housing Administration, which has been charged with supporting first-time homebuyers since the Great Depression, has raised its fees to levels that are pricing many creditworthy Americans out of the market. That’s bad for the American dream and for the economy. What our economy needs now are fewer barriers to first-time homeownership—not more.

First-time home purchases are now at historic lows. They have accounted for only 28 percent of existing home sales year-to-date, according to the National Association of Realtors. That’s 6 percentage points below the five-year average and well below the long-term benchmark of 40 percent. This dearth of first-time purchasers has materially contributed to the lowest level of homeownership in nearly 20 years.

A number of factors have contributed to the drop in first-time purchases. For one, the economic slowdown has been especially tough on 24- to 35-year-olds—an age group that traditionally comprises a significant share of first-time buyers. Many of today’s recent college graduates are facing crushing levels of student debt. The post-crisis trend toward stricter underwriting standards has also made mortgages harder to come by.

But perhaps the biggest and most surprising challenge faced by today’s aspiring homeowners comes from the FHA, the very agency created to help them.

Among other things, the agency provides mortgage insurance to first-time buyers. Borrowers support the agency’s insurance fund through up-front charges and monthly premiums. If a buyer defaults, the FHA repays the lender with money from the fund. This affordable mortgage insurance has helped more than 34 million Americans purchase homes since the 1930s.

But in recent years, the agency has been more of a barrier than facilitator for many of first-time buyers. The FHA raised its fees to cover a wave of defaults in the wake of the financial crisis. This was a necessary step. However, premiums are still at crisis levels years later. For many would-be homeowners, it’s just too much.

As recently as 2010, monthly premiums for an FHA-insured mortgage totaled .55 percent of the loan amount. Today, it’s 1.35 percent, a 145 percent increase that translates into an additional $120 on a monthly mortgage payment for a $180,000 loan. The up-front fee that borrowers pay to the FHA has also risen dramatically, from 1 percent of the loan amount to 1.75 percent.

These changes are pushing potential buyers at the margin out of the market. According to the National Association of Realtors, the FHA’s higher mortgage premiums pushed 1.5 million renters over a sustainable debt-to-income level to qualify for a home loan in 2013.

This year, the FHA is on track to help around 450,000 first-time homebuyers, according to the agency’s most recent report to Congress. History suggests that this number is a full 33 percent lower than it should be. In the five-year period between 2009 and 2013, for instance, the FHA helped about 690,000 first-time homebuyers annually.

A new approach to lending policy will be necessary if the U.S. economy is to benefit from a resurgence in first-time home purchases.

To start, the FHA must adjust its policies to reflect today’s realities—not the cash-strapped days of the financial crisis. Last year alone, the agency’s mortgage insurance fund increased in value by $15 billion. The FHA can afford to reduce monthly premiums to pre-crisis levels.

One revenue-neutral solution would shift a portion of today’s monthly insurance fee into the up-front premium. By enabling borrowers to finance their mortgage insurance over the life of a loan, the FHA could improve affordability for consumers without eliminating revenue. Federal officials could also eliminate the requirement that buyers pay for mortgage insurance for the entire life of their loan and drop it when the borrower reaches 20 percent equity—just as it is done in the conforming market.