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Understanding how credit affects your client’s ability to purchase
Course number E1868
Renee Duval NMLS#96967Certified Mortgage Professional
NH Mortgage Bankers & Brokers Association
NMLS ID #2561
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an electronic record of your credit activities.
is a record of how you use credit and how much of it you have available.
Mortgage report contains merged data from 3 credit bureaus
Credit Bureaus◦ Equifax◦ Experian◦ Trans Union
Credit Services◦ Birchwood◦ 30 Nationally
Provided by a Credit Service
Merges Data from 3 bureaus
Temporary File
Can be amended/updated
Updated prior to closing
Mathematical Model
A credit score is a number that represents the statistical probability of you becoming delinquent on loans extended to you.
A comparison to the patterns in millions of past credit reports
Snapshot in time
We have come to rely on credit scores more in the last 10 years than ever before. Credit now effects, your employment, utilities, insurance, as well as auto and home purchases.
Fair Isaac Company (FICO) ◦ Was developed in 1956◦ Went public in 1986◦ Is the standard by which all other credit scoring
models have been developed◦ www.myfico.com
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The first purpose of the FICO score is to determine likeliness for a 90 days late payment in the first 24 months of the loan
Second purpose to determine level of risk780-850 Low Risk*740-780 Medium-Low Risk*690-740 Medium Risk*620-690 Medium-High Risk*620 and Below High Risk
800 or higher 18.4%750-799 18.8%700-749 16.2%650-699 12.2%600-649 10.1%550-599 9.9%500-549 8.5%
499 and under 6% According to fico.com as of Oct 2012
Fair Credit Reporting Act 1971◦ Established guidelines for accuracy of reporting and protect
privacy of consumers.
FACTA of 2003◦ 1 Free Credit report per bureau per year◦ Further protections for consumer in light of concerns about
Identify Theft Annualcreditreport.com Credit Karma & FreeCreditReport.com Th
is is
not
an
offe
r to
exte
nd c
redi
t or i
nten
ded
to b
e di
strib
uted
to c
onsu
mer
s.
Prog
ram
, rat
es, a
nd te
rms
are
subj
ect t
o ch
ange
and
und
erw
ritin
g ap
prov
al.
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is n
ot a
n of
fer t
o ex
tend
cre
dit o
r int
ende
d to
be
dist
ribut
ed to
con
sum
ers.
Pr
ogra
m, r
ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
Paying debt on time increases score
Late payments, judgments, and charge offs, all have negative impact on scores.
Most recent 24 months = Most Weight
The more recent, the greater the impact
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ribut
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con
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Pr
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m, r
ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
Weight by Year
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term
s ar
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bjec
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chan
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nd u
nder
writ
ing
appr
oval
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• 40% = current to 12 months• 30% = 13-24 months• 20% = 25-36 months• 10% = 37+ months
A major delinquency in past year = 93% negative impact
a major delinquency between 1-2 years = 60%
a major delinquency between 2-3 years = 44%
a 3-4 year old delinquency = 33%
older than 4 years = 22% negative impact.
Over 7 years should be removed from report/no impact
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con
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Pr
ogra
m, r
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, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
30 days late – no more than 3in last 12 months
60 days late – no more than 1 in last 12 months
90 days late – none in last 6 monthsno more than in past 12
120 days late – none in past 12 months
UtilizationThe ratio between the balance and the high credit limit.
Balance/Credit Limit (What are the 2 ways to reduce this ratio?)
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, and
term
s ar
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bjec
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chan
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nd u
nder
writ
ing
appr
oval
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Utilization
◦Over the credit limit loses big pts◦Over 50% of credit limit loses pts◦Under 50% of credit limit gains pts◦ Ideal is low balances (under 30%)
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chan
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nd u
nder
writ
ing
appr
oval
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◦Length of time the borrower has had credit.
◦A seasoned borrower will be stronger in this area of credit scoring.
◦New Credit = shorter history This
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be
dist
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con
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Pr
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, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
◦ A mix of Installment loans (auto, student loans…) and revolving credit (credit cards) has the most positive affect on the credit score.
◦ Having only 1 type of credit can actually bring the score down.
◦ Avoid using finance companies
◦ VISA/MC/Discover “National Cards”
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appr
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◦ This is the part of the score that quantifies the number of inquiries in the last 12 months.
◦ Inquiries can reduce scores
◦ Hard inquiries can cost up to 3 - 10 points! credit cards loans – auto/student loans/secured/personal mortgage
◦ Soft pulls have no effect on score Insurance Employment Utilities Consumer pulls
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, and
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s ar
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bjec
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chan
ge a
nd u
nder
writ
ing
appr
oval
.
◦ Inquiries = lower score
◦Recent = more impact
◦Multiple pulls for mortgage = OK
◦A buyer should not inquire intonew credit while considering home ownership.
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Pro
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, rat
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nd te
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are
subj
ect t
o ch
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and
und
erw
ritin
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prov
al.
Interest rates are based credit scores
Loan Level Pricing
Lower Score = Higher Rate
Higher Rate = Lower Sales
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is n
ot a
n of
fer t
o ex
tend
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dit o
r int
ende
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dist
ribut
ed to
con
sum
ers.
Pr
ogra
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ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
FHA 580
203K -620RD 620VA 620
NHHFA 620Conventional 620
These credit score minimums are attributed to MMC investor requirements, there may be other institutions that will accept scores lower than indicated above.
Score Rate APR
740 5% 5.25%
700-739 5.125% 5.375%
680-699 5.25% 5.5%
660-679 5.5% 5.75%
620-659 5.625% 5.875%
Based on a $300,000 sales price with 20% down payment $240,000 conventional loan with 30-year term. This is a hypothetical example for demonstrations purposes
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is n
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ribut
ed to
con
sum
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Pr
ogra
m, r
ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
For a Fixed Rate
Score Points Paid to Get Rate
740 0 0720 .25% $ 712.50700 .75% $2,137.50680 1% $2,850660 2.5% $7,125640 3% $8,577620 Score does not meet minimum program requirements
Based on a 5% down payment loan, $285,000 loan
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is n
ot a
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fer t
o ex
tend
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dist
ribut
ed to
con
sum
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Pr
ogra
m, r
ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
For a Fixed Rate
Score MI Rate Monthly Mortg Ins Payment
720+ .65 $154.38680+ .89 $211.38660 1.13 $268.38640 1.22 $289.75620 Score does not meet minimum program requirements
Rates came from United Guarantee Mortgage Insurance CompanyBased on a $300,000 sales price & 5% down payment - $285,000 loan
600 Credit Score 620 Credit Score
Assumes NH Housing cash assistance of 3% given toward down payment
$200K sales price - $4800 taxesSeller pays $8500 toward closing
FHA Buyer
600 credit score 620+ score & accept findings
$6000 X43%
=$2580 - 800=$1380 max housing
Qualifies for $150K – $175K Depending on taxes
$6000 X55%
=$3300 - 800=$2500 max housing
Qualifies for max FHA ◦ $280,000 sales price◦ 271,050 in Merrimack County
Over 80% of Clients have the potential to increase their credit scores within 30 days!
Deleting Inaccurate Info
May – SeptBorrower now eligible for FHA
Deleting Old Negative Info
The ideal credit report
◦ 3 or more open lines of credit withno late payments in the past 24 months
◦ Balances on credit cards below 50% of limit
◦ No unpaid collection debt
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nd u
nder
writ
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Are there any accounts that do not belong to the borrower?
• Are there any duplicate accounts? • Are any of the account references outdated? • Are any of the account histories inaccurate? • Are any monthly payments shown incorrectly? • Are there any inquiries within the last six
months? • Are there any new accounts within the last 60
days? • Is the current mortgage reference up to date?
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is n
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n of
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r in
tend
ed to
be
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ribut
ed to
co
nsum
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Pro
gram
, rat
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nd te
rms
are
subj
ect t
o ch
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and
und
erw
ritin
g ap
prov
al.
This is not an offer to extend credit or intended to be distributed to consumers. Program, rates, and terms are subject to change and underwriting approval
Other considerations
◦ Rental history
◦ Payment shock
◦ Checking & Savings history
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dist
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sum
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Pr
ogra
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, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
Automated underwriting
LP – loan prospectorDU – desktop underwriterDO – desktop originatorFHA score cardGUS – Guaranteed Underwriting System
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is n
ot a
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fer t
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dit o
r int
ende
d to
be
dist
ribut
ed to
con
sum
ers.
Pr
ogra
m, r
ates
, and
term
s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
25% of credit reports contain serious errors
79% of credit reports contain errors
54% contain incorrect personal information
30% contain credit accounts that had closed by the consumer but incorrectly remain listed as open Th
is is
not
an
offe
r to
exte
nd c
redi
t or i
nten
ded
to b
e di
strib
uted
to c
onsu
mer
s.
Prog
ram
, rat
es, a
nd te
rms
are
subj
ect t
o ch
ange
and
und
erw
ritin
g ap
prov
al.
How do I dispute an error on my credit report?
Answer: contact both the credit reporting agency/agencies and the company that provided the information.
◦ Step 1: Dispute the information with the credit reportingagencies (TU, Equifax or Experian)
◦ Step 2: Dispute the information with the companythat provided the information.
https://www.consumerfinance.gov/ask-cfpb/how-do-i-dispute-an-error-on-my-credit-report-en-314/
Disputing the information with the credit reporting agencies (TU, Equifax or Experian)
◦ Have the credit report in hand when you start◦ Identify which bureau is reporting the information ◦ Identify how they are reporting it Spelling of the creditor’s name must match your dispute Account # must match your dispute
Each bureau has a dispute form you can download Write your own the letter ◦ Provide enough information to identify yourself◦ Be specific in identifying the disputed accounts
Provide Additional Information◦ Include a copy of your credit report with the disputed
items marked or circled. ◦ Include supporting documentation when available◦ Include a copy of your driver’s license◦ Include a copy of a utility bill
Other◦ Consider sending with “return receipt requested”◦ Keep copies of everything for your records
If mailing consider sending with“return receipt requested”
Keep copies of everything for your records Request confirmation the error has been removed There is no charge for submitting a dispute It is your right to dispute inaccurate information The agency has 45 days to investigate They must report back to you within 5 days
of completing their investigation
CFPB provides guidance on writing disputes All companies that report information to
credit bureaus must accept disputes from consumers
Write and sign the Dispute Letter Mail Dispute Letter with supporting docs Ask for “return receipt requested” Keep copies of everything They have up to 45 days to research your
dispute and then must report back to you
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is n
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nd u
nder
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appr
oval
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A Few Do’s and Don’ts While you are waiting for your new mortgage
Do Not: Obtain any new credit after initial applicationthis includes any debt consolidation –Please wait!!!
Do Not: Pay off any debt including collections and charge offs Do Not: Make any late payments. Now is the time to be especially
careful. Even a single late payment can be devasting. Do Not: Pay your mortgage or rent late. Don’t think because you
are selling or moving you can roll that last payment over. Do Not: Use deposit cash into your bank accounts or use cash to
create the make the deposit check that goes with the sales agreement Do: Notify your lender of anything that could affect your
loan approval especially if you change employer Do: Call Merrimack Mortgage at 603-225-LOAN (5626)
Any one of these items may be acceptable case by case, but you should notify your lender in advance of any changes to your financial picture.
Carol Jordan Renee Duval Nellie DoughtyMNMLS# 94985 NMLS# 96967 NMLS#170344
Office (603) 225-LOAN (5626)
"The views expressed in this presentation are my own and do not reflect those of my employer, colleagues or its clients“
"Presentation for Realtor use only, not intended to be distributed to consumers"
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is n
ot a
n of
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tend
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dist
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ed to
con
sum
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Pr
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, and
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s ar
e su
bjec
t to
chan
ge a
nd u
nder
writ
ing
appr
oval
.
Prequalified Preapproved
Loan Officer speaks with borrower about their income, assets & debt
Credit report may be pulled
Automated underwriting may occur
Paystubs, W2s & tax returns may be reviewed
Bank statements may be reviewed
Prequal Letter written Loan Officer’s opinion
Borrower signs application
Credit report is obtained automated underwriting
is completed Paystubs, W2s in the file Bank statements in file Underwriter reviews Commitment from
lender issued
